THE RELATION BETWEEN THE TERM STRUCTURE OF INTEREST-RATES AND CANADIAN ECONOMIC-GROWTH

The Canadian bond market contains valuable information about the futur e real economic growth. These forecasts, which are based on a simple a sset-pricing theory, are more accurate than the ones based on time-ser ies models and compare favourably with professional forecasts. Signifi cantly, the term structure of interest rates in Canada can forecast Ca nadian economic growth over and above the information contained in the U.S. term structure. In addition, evidence is presented that suggests that the Canadian term structure contains information relevant for fo recasting the part of Canadian economic growth that is unrelated to th e US. business cycle.