02020cas a2200241 a 4500 AALejournalIMF008708 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451843705 1018-5941 BD-DhAAL BD-DhAAL Hu, Zuliu. The Yield Curve and Real Activity / Zuliu Hu. Washington, D.C. : International Monetary Fund, 1993. 1 online resource (38 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students The financial press frequently suggest that the shape of yield curve reflects information about the prospects of the economy. This paper attempts to formalize the link between the yield curve and the real economic activity. A closed-form formula for the term structure of interest rates is derived. It is shown that the term structure embodies the market's expectation about changes in the macroeconomic fundamental--the growth in real aggregate output of the economy. The paper then documents the use of bond market data for predicting GDP growth in the G-7 industrial countries. The results suggest that a simple measure of the slope of the yield curve, namely the yield spread, serves as a good predictor of future economic growth. The out-of-sample forecasting performance of the yield spread compares favorably with that of the alternative stock price-based model and a univariate time series (ARMA) model. One practical implication is that it may be useful to add some measure of the term structure to the list of. Mode of access: Internet IMF Working Papers; Working Paper ; No. 1993/019 Full text available on IMF http://elibrary.imf.org/view/journals/001/1993/019/001.1993.issue-019-en.xml IMF e-Library