Probability predictions of rising real GDP growth and inflation: the usefulness of monetary indicators

Donald Schunk

Applied Economics, 2008, vol. 40, issue 9, 1139-1149

Abstract: Several recent studies have focused on the predictive power of the yield spread for future economic activity. The current paper reformulates the work of Estrella and Mishkin (1998) by focusing on the usefulness of monetary variables for generating probability predictions of rising or falling real GDP growth and inflation. Besides redefining the dependent variables, the independent monetary variables are allowed to include lagged information. Also, the current paper considers the usefulness of the Divisia monetary aggregates in the context of probit models for predicting the probability that real GDP growth or inflation will be increasing

Date: 2008
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DOI: 10.1080/00036840600771247

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