This paper examines the predictive content of the term structure of interest rates for economic activity in Canada. Recent papers for the United States and other countries find that the slope of the term structure is a very good predictor of output growth. We find a strong, positive relationship...

Of particular concern to monetary policy-makers is the considerable unreliability of financial variables for predicting GDP growth and inflation. As Stock and Watson (2003) find, some financial variables work well in some countries or over some time periods and forecast horizons, but the results...

An important challenge facing central banks is making decisions under uncertainty about the dynamic effects of monetary policy actions. The authors stress the importance of explicitly recognizing uncertainty about the transmission mechanism when formulating policy advice. They argue that one way...