Future real GDP: real interest rate and inflation matter

Gabe J. Bondt ()
Additional contact information
Gabe J. Bondt: European Central Bank, Business Cycle Analysis Division

Journal of Economics and Finance, 2025, vol. 49, issue 3, No 1, 681 pages

Abstract: Abstract This study demonstrates that the real interest rate and headline inflation significantly lead real output. Specifically, the level of the real long-term interest rate positively influences future output, while changes in this rate and the level of headline HICP inflation have a negative impact. This is shown for euro area real GDP growth two to eight quarters ahead, conditional on the leading content of six established output predictors that capture monetary policy transmission channels. The findings are robust when considering ex ante proxies for inflation expectations – autoregressive inflation forecasts and the Survey of Professional Forecasters’ inflation expectations – instead of relying on ex post actual GDP deflator inflation. This robustness remains when using instrumental variables estimation, accounting for nonlinearities, or employing a machine learning tool. Out-of-sample forecast performance underscores the advantage of averaging forecasts from the eight individual predictors, especially for longer ahead forecast horizons. A policy implication is that output forecasters should closely monitor inflation.

Keywords: Growth; Inflation; Interest rates; Output predictors; Monetary policy transmission (search for similar items in EconPapers)
JEL-codes: C22 E32 E44 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s12197-025-09719-9 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:jecfin:v:49:y:2025:i:3:d:10.1007_s12197-025-09719-9

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/12197/PS2

DOI: 10.1007/s12197-025-09719-9

Access Statistics for this article

Journal of Economics and Finance is currently edited by James Payne

More articles in Journal of Economics and Finance from Springer, Academy of Economics and Finance Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().