Explaining GDP Growth : A Long Term Horse Race, 1955-2013

From 1955 through 1980, both the slope of the yield curve and the level of stock returns provided considerable information about future output growth. Using data for growth, the yield curve and returns in a long term horse race from 1955 through 2013, this study shows that the explanatory power of the yield curve virtually collapsed after 1980. The explanatory power of stock returns also weakened in the 1990s but recovered considerably thereafter. Although the returns-output growth relation is not completely stable, our results suggest this relation is much more robust than the yield curve-output growth relation. The returns-output growth relation is much less sensitive to changes in cyclicality, inflation, and the resulting response of monetary policy