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How Does Yield Curve Predict GDP Growth? A Macro-Finance Approach Revisited

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  • Junko Koeda

    (Faculty of Economics, University of Tokyo)

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    Abstract

    This note analyzes the yield-curve predictability for GDP growth by modifying the time-series property of the interest rate process in Ang, Piazzesi, and Wei (2006). When interest rates have a unit root and term spreads are stationary, the short ratefs forecasting role changes, and the combined information from the short rate and term spread intuitively reveals the relationship between the shift of yield curves and GDP growth.

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    File URL: http://www.carf.e.u-tokyo.ac.jp/pdf/workingpaper/fseries/247.pdf
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    Bibliographic Info

    Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-237.

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    Length: 19 pages
    Date of creation: Nov 2010
    Date of revision: Jan 2011
    Handle: RePEc:cfi:fseres:cf237

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    1. Clark, Todd E. & West, Kenneth D., 2007. "Approximately normal tests for equal predictive accuracy in nested models," Journal of Econometrics, Elsevier, vol. 138(1), pages 291-311, May.
    2. Campbell, John Y & Shiller, Robert J, 1987. "Cointegration and Tests of Present Value Models," Journal of Political Economy, University of Chicago Press, vol. 95(5), pages 1062-88, October.
    3. Bordo, Michael D. & Haubrich, Joseph G., 2008. "Forecasting with the yield curve; level, slope, and output 1875-1997," Economics Letters, Elsevier, vol. 99(1), pages 48-50, April.
    4. Hibiki Ichiue, 2004. "Why Can the Yield Curve Predict Output Growth, Inflation, and Interest Rates? An Analysis with Affine Term Structure Model," Econometric Society 2004 Far Eastern Meetings 581, Econometric Society.
    5. Francis X. Diebold & Robert S. Mariano, 1994. "Comparing Predictive Accuracy," NBER Technical Working Papers 0169, National Bureau of Economic Research, Inc.
    6. Sharon Kozicki & P.A. Tinsley, 1997. "Shifting endpoints in the term structure of interest rates," Research Working Paper 97-08, Federal Reserve Bank of Kansas City.
    7. Ang, Andrew & Piazzesi, Monika & Wei, Min, 2006. "What does the yield curve tell us about GDP growth?," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 359-403.
    8. Harvey, David I & Leybourne, Stephen J & Newbold, Paul, 1998. "Tests for Forecast Encompassing," Journal of Business & Economic Statistics, American Statistical Association, vol. 16(2), pages 254-59, April.
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    Cited by:
    1. Junko Koeda, 2011. "Japanese Yield Curves In and Out of a Zero Rate Environmnet: A Macro-Finance Perspective," CARF F-Series CARF-F-254, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo, revised Nov 2011.

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