Campbell Harvey is a finance professor at Duke University. Back in the mid-1980s, when he was working on his PhD thesis, scholars were scrutinizing different markets for evidence that they could predict economic growth.
Harvey turned his own attention to the Treasury market — and his thesis would become the first formal explanation of the yield curve's predictive qualities. In his model, a yield curve that inverts for a quarter — that is, long-term interest rates are on average lower than short-term interest rates for a full quarter — predicts that a recession will begin within about a year.
At the time he was writing his thesis, this was true for every recession since the 1960s — and it has been true of every recession since his thesis was published.
Music by Drop Electric. Find us: Twitter/ Facebook.
Subscribe to our show on Apple Podcasts, PocketCasts and NPR One.
Copyright 2021 NPR. To see more, visit https://www.npr.org.
