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The Relation Between the Term Structure of Interest Rates and Canadian Economic Growth

Canadian Journal of Economics, (1996) forthcoming.

Campbell R. Harvey
Duke University, Durham, NC 27706 USA
National Bureau of Economic Research, Cambridge, MA 02138


The Canadian bond market contains valuable information about the future path of real economic growth. By comparing interest rates of various maturities, this paper shows how to extract forecasts of gross national product and aggregate personal consumption growth. These forecasts are more accurate than the ones based on time-series models. In addition, the forecasts from the term structure have lower forecast errors than the projections from Data Resources Inc.'s Canadian econometric model.