Practical Applications of The Term Structure and World Economic Growth: A Retrospective and 30 Years of Out-of-Sample Evidence

Abstract

In The Term Structure and World Economic Growth: A Retrospective and 30 Years of Out-of-Sample Evidence, from the Fall 2022 issue of The Journal of Fixed Income, Campbell Harvey of Duke University reconfirms his findings from 1991 that an inverted yield curve is a strong predictor of recessions. In his 1991 article, Prof. Harvey found that each of the four recessions from 1968 to 1984 was preceded by an inverted yield curve and therefore concluded that an inverted yield curve was a signal of a coming recession. In his current article, he notes that the yield curve again became inverted before the onset of each of the four US recessions since 1990. Indeed, the yield curve has not given a false signal of a recession since 1968, and there is a strong correlation between the length of yield curve inversions and the length of recessions.