Examining the Relationship between Term Structure of Interest Rates and Economic Activity in Namibia

Abstract

Abstract: This paper analysed the forecasting ability of yield-curve as a predictor of the short-run fluctuations in economic activities in Namibia. The study employed the techniques of unit root, cointegration, impulse response functions and forecast error variance decomposition on the quarterly data covering the period 1996 to 2015. The results revealed a negative relationship between the term structure of interest rates and economic activities, though statistically insignificant. This suggests that the yield-curve has no forecasting ability as a predictor of economic activity in Namibia. Keywords: Yield-curve; Forecasting; Economic activity; Namibia; Cointegration; Impulse response function.