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Does the term structure forecast

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  • Berardi, Andrea
  • Torous, Walter

Abstract

Relying on a simple general equilibrium model of the term structure, both nominal yields and real consumption growth rates can be shown to be a±ne in the unobservable state variables. We can then express real consumption growth rates in terms of nominal yields rather than the unobservable state variables with the coe±cients of the resultant forecasting relation being endogenously determined by the term structure model. In this sense, we use the entire term structure to forecast real consumption growth rates and provide empirical evidence consistent with the model more accurately predicting real consumption growth rates than a regression model based on the term spread.

Suggested Citation

  • Berardi, Andrea & Torous, Walter, 2002. "Does the term structure forecast," University of California at Los Angeles, Anderson Graduate School of Management qt4kd201gw, Anderson Graduate School of Management, UCLA.
  • Handle: RePEc:cdl:anderf:qt4kd201gw
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    References listed on IDEAS

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    1. Duffee, Gregory R, 1999. "Estimating the Price of Default Risk," Review of Financial Studies, Society for Financial Studies, vol. 12(1), pages 197-226.
    2. Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-144, January.
    3. Chapman, David A., 1997. "The cyclical properties of consumption growth and the real term structure," Journal of Monetary Economics, Elsevier, vol. 39(2), pages 145-172, July.
    4. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, vol. 53(2), pages 363-384, March.
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    Cited by:

    1. 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.

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