Term Structure and Economic Activity

Madhu S Panigrahi Information contained in the term structure and its slope is crucial for a number of reasons. The term structure can be used by central banks as a guide to monetary policy. Movements of term structure of nominal rates over time throw light on the movement of real interest rates. The term structure of real interest rates has a close bearing on asset pricing and the direction of the business cycle. An exact picture of future interest and inflation rates and business and economic activity is essential for market operators for right investment decisions and a study of the term structure and its slope may provide the necessary information.