Time-varying predictive content of financial variables in forecasting GDP growth in the G-7 countries
Petri Kuosmanen and
The Quarterly Review of Economics and Finance, 2019, vol. 71, issue C, 211-222
The predictive association between financial markets and the real economy has proven unstable and transitory over time. This study reexamines empirical evidence regarding the predictive content of financial variables for GDP growth in light of the changed economic circumstances in the G-7 countries in the 2000s. We explicitly address time variations in the predictive power of financial variables for GDP growth. The results indicate that the behavior of the forecasting ability contains a considerable amount of temporal dominance and time persistence, which often vary contemporaneously among the G-7 countries. The forecasting content is clearly connected to unsettled economic conditions.
Keywords: Term spread; Short-term interest rates; Stock market; Forecasting; Macroeconomy (search for similar items in EconPapers)
JEL-codes: E37 E44 E47 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:71:y:2019:i:c:p:211-222
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