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The Term Structure and Economic Growth: The Recession of 2001

Global Asset Allocation and Stock Selection. The Term Structure and Economic Growth: The Recession of 2001. Campbell R. Harvey Duke University, Durham, NC USA National Bureau of Economic Research, Cambridge MA USA http://www.duke.edu/~charvey. Update January 2003.

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The Term Structure and Economic Growth: The Recession of 2001

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  1. Global Asset Allocation and Stock Selection The Term Structure and Economic Growth: The Recession of 2001 Campbell R. Harvey Duke University, Durham, NC USA National Bureau of Economic Research, Cambridge MA USA http://www.duke.edu/~charvey

  2. UpdateJanuary 2003 • In July 2000, the Yield Curve inverted forecasting recession to begin in June 2001 • Official NBER Peak is March 2001 (Yield Curve within one quarter accurate). • In March 2001, the Yield Curve returned to normal forecasting the end of the recession in November 2001. • NBER has not dated the end of the recession. However, forecast looks good.

  3. Exhibit 1

  4. Exhibit 2 Yield Curve Inverts Before Last Six Recessions(5-year Treasury bond - 3-month Treasury bill) Annual GDP growth or Yield Curve % Real annual GDP growth Yield curve Recession Correct Recession Correct Yield curve accurate in recent forecast Recession Correct 2 Recessions Correct Data though 1/12/03

  5. Exhibit 3 Recent Annualized One-Quarter GDP Growth (10-year and 5-year Yield Curves) Annualized 1-quarter GDP growth Yield curve % Real annualized one-quarter GDP growth 10-year Both curves invert 2000Q3 5-year Data though 1/12/03

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