Predicting Real Growth Using the Yield Curve
The yield curve, which relates interest rates to notes and bonds of various maturities, is often used by economists and business analysts to predict future economic growth. But how reliable is it? This article uses out-of-sample regressions to determine how well the 10-year, three-month yield spread predicts future real GDP growth. The authors show that although the yield curve is a good predictor over the entire 30-year sample period, it has become much less accurate over the last decade.
Suggested citation: Dombrosky, Ann, and Joseph Haubrich. “Predicting Real Growth Using the Yield Curve,” Federal Reserve Bank of Cleveland, Economic Review, vol. 32, no. 1, pp. 26-35, 03.01.1996.