Andrew Ang

What Does the Yield Curve Tell Us about GDP Growth?

Coauthor(s): Monika Piazzesi, Min Wei.


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A lot, including a few things you may not expect. Previous studies find that the term spread forecasts GDP but these regressions are unconstrained and do not model regressor endogeneity. We build a dynamic model for GDP growth and yields that completely characterizes expectations of GDP. The model does not permit arbitrage. Contrary to previous findings, we predict that the short rate has more predictive power than any term spread. We confirm this finding by forecasting GDP out-of-sample. The model also recommends the use of lagged GDP and the longest maturity yield to measure slope. Greater efficiency enables the yield-curve model to produce superior out-of-sample GDP forecasts than unconstrained OLS regressions at all horizons.

Above is a preprint version of this article. The final version may be found at

Source: Journal of Econometrics
Exact Citation:
Ang, Andrew, Monika Piazzesi, and Min Wei. "What does the Yield Curve Tell us about GDP Growth?" Journal of Econometrics 131, no. 1-2 (2006): 359-403.
Volume: 131
Number: 1-2
Pages: 359-403
Date: 2006