The Term Structure and Economic Growth: The Recession of 2001

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

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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. - PowerPoint PPT Presentation

Transcript of The Term Structure and Economic Growth: The Recession of 2001

Page 1: The Term Structure and Economic Growth: The Recession of 2001

The Term Structure and Economic Growth: The Term Structure and Economic Growth: The Recession of 2001The Recession of 2001

Campbell R. HarveyDuke University, Durham, NC USA

National Bureau of Economic Research, Cambridge MA USA

http://www.duke.edu/~charvey

Global Asset Allocation and Stock Selection

Page 2: The Term Structure and Economic Growth: The Recession of 2001

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.

Page 3: The Term Structure and Economic Growth: The Recession of 2001

Exhibit 1

Lead Lag Analysis in Months

NBER Peak

NBER Trough

Length of Cycle Inversion Lead Normal Lead

Length of Inversion

Dec-69 Nov-70 11 Oct-68 14 Feb-70 9 16Nov-73 Mar-75 16 Jun-73 5 Jan-75 2 19Jan-80 Jul-80 6 Nov-78 14 May-80 2 18Jul-81 Nov-82 16 Oct-80 9 Oct-81 13 12Jul-90 Mar-91 8 May-89 14 Feb-90 13 9

Mar-01 ? ? Jul-00 8 Mar-01 ? 8

Average last four 11 11 7 15

Forecast evaluation:

Projected beginning of recession (as of July 2000) = Jun-01Actual NBER dating of beginning of recession Mar-01

Projected end of recession (as of March 2001) = Nov-01

Business Cycle 5-year Yield Spread

Page 4: The Term Structure and Economic Growth: The Recession of 2001

Yield Curve Inverts Before Last Six Recessions(5-year Treasury bond - 3-month Treasury bill)

-6

-4

-2

0

2

4

6

8 % Real annual GDP growth

Yield curve

RecessionCorrect 2 Recessions

Correct

RecessionCorrect Yield curve accurate

in recent forecast

RecessionCorrect

Exhibit 2

Annual GDP growthor Yield Curve

Data though 1/12/03

Page 5: The Term Structure and Economic Growth: The Recession of 2001

Recent Annualized One-Quarter GDP Growth (10-year and 5-year Yield Curves)

-4

-2

0

2

4

6

8

-2

-1

0

1

2

3

4% Real annualized one-quarter GDP growth

Data though 1/12/03

Exhibit 3

Annualized 1-quarter GDP growth

Both curvesinvert 2000Q3

10-year

5-year

Yield curve


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