Do Financial Variables Help Predict Macroeconomic Environment? The Case of the Czech Republic

Tomas Havranek, Roman Horvath and Jakub Matějů

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: In this paper, we 1) examine the interactions of financial variables and the macroeconomy within the block-restriction vector autoregression model and 2) evaluate to what extent the financial variables improve the forecasts of GDP growth and inflation. For this reason, various financial variables are examined, including those unexplored in previous literature, such as the share of liquid assets in the banking industry and the loan loss provision rate. Our results suggest that financial variables have a systematic and statistically significant effect on macroeconomic fluctuations. In terms of forecast evaluation, financial variables in general seem to improve the forecast of macroeconomic variables, but the predictive performance of individual financial variables varies over time, in particular during the 2008–2009 crisis.

Keywords: Forecasting; macroeconomic and financial linkages; vector autoregressions. (search for similar items in EconPapers)
JEL-codes: E44 E47 E58 G17 (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-cba, nep-for, nep-mac and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2010/06

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