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The Real Term Structure and Consumption Growth

Journal of Financial Economics, 22 (1988): 305-333

Campbell R. Harvey

Duke University, Durham, NC 27708, USA


One Version of the consumption-based asset pricing model implies a linear relation between expected returns and expected consumption growth. This paper provides evidence that the expected real term structure contains information that can be used to forecast consumption growth. The evidence is strongest for the 1970s and 1980s. The real term structure contains more information than two alternative measures: lagged consumption growth and lagged stock returns. Further, the real term structure appears to have slightly more forecasting power than the leading commercial econometric models.