Utilizing financial market information in forecasting real growth, inflation and real exchange rate

Juha Junttila and Marko Korhonen

International Review of Economics & Finance, 2011, vol. 20, issue 2, 281-301

Abstract: In this paper we build an open economy extension of the Gordon (1962) valuation model that suggests a simple forecasting system for three macroeconomic variables; the real growth, inflation and real exchange rate. All the forecasting equations in our system utilize current financial market information in the form of dividend yields and short-term interest rate. Our empirical results indicate that these simple forms of financial market information are relevant for forecasting the time-varying underlying trends in the macroeconomic data for the U.K., Eurozone and Japan, when treating the U.S. as the world market.

Keywords: Stock; market; Forecasting; Macroeconomy; Exchange; rates; Parities (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:20:y:2011:i:2:p:281-301

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