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 February 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.

Exhibit 1

Exhibit 2 Yield Curve Inverts Before Last Six Recessions (5-year Treasury bond - 3-month Treasury bill) Annual GDP growth or Yield Curve % Real annual GDP growth Yield curve Recession Correct Recession Correct Yield curve accurate in recent forecast Recession Correct 2 Recessions Correct Data though 2/6/03

Exhibit 3 Recent Annualized One-Quarter GDP Growth (10-year and 5-year Yield Curves) Annualized 1-quarter GDP growth Yield curve % Real annualized one-quarter GDP growth 10-year Both curves invert 2000Q3 5-year Data though 2/6/03