Forecasting growth during the Great Recession: is financial volatility the missing ingredient?

Laurent Ferrara, Clément Marsilli and J-P. Ortega

Working papers from Banque de France

Abstract: The Great Recession endured by the main industrialized countries during the period 2008 2009, in the wake of the financial and banking crisis, has pointed out the major role of the financial sector on macroeconomic fluctuations. In this respect, many researchers have started to reconsider the linkages between financial and macroeconomic areas. In this paper, we evaluate the leading role of the daily volatility of two major financial variables, namely commodity and stock prices, in their ability to anticipate the output growth. For this purpose, we propose an extended MIDAS (Mixed Data Sampling) model that allows the forecasting of the quarterly output growth rate using exogenous variables sampled at various higher frequencies. Empirical results on three industrialized countries (US, France, and UK) show that mixing daily financial volatilities and monthly industrial production is useful at the time of predicting gross domestic product growth over the Great Recession period.

Keywords: Great Recession; GDP Forecasting; Financial variables; MIDAS approach; Volatility. (search for similar items in EconPapers)
JEL-codes: C53 E17 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2013
New Economics Papers: this item is included in nep-for and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Forecasting growth during the Great Recession: is financial volatility the missing ingredient? (2014)
Working Paper: Forecasting growth during the Great Recession: is financial volatility the missing ingredient? (2014)
Working Paper: Forecasting US growth during the Great Recession: Is the financial volatility the missing ingredient? (2013)
Working Paper: Forecasting US growth during the Great Recession: Is the financial volatility the missing ingredient? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:454

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