The yield curve as a predictor of GDP and unemployment: the case of G7

Abstract

The yield curve - the difference between the long-term bond yield and the short treasury- is one of the most-watched financial indicators especially for its forecasting abilities towards the real economy and how it is going to respond. In this paper, we re-examine the yield curve and its predicting abilities for GDP and the Unemployment rate for the G7 industrial countries. This research contributes to taking the most recent years into account for multiple countries. We conclude that for GDP growth the yield curve is still a consistent predictor but it is not the most suitable for the case of Unemployment rate