The predictive content of financial variables: Evidence from the euro area

Ekaterini Panopoulou

The Institute for International Integration Studies Discussion Paper Series from IIIS

Abstract: This paper investigates the predictive ability of financial variables for real growth in the euro area through bivariate and multivariate non-parametric Granger causality tests. Apart from assessing the within-country forecasting ability of commonly-employed financial variables, such as the term spread, the stock market returns and the growth of real money supply, we also test for cross-country influences. Employing a monthly dataset for the period from January 1988 to May 2005, we find that financial variables are useful leading indicators for euro area growth at a joint level, albeit at different horizons, ranging from one to six quarters. In addition to non-parametrically testing for Granger causality, we consider testing the out of sample forecasting ability of the respective financial variables in a parametric framework for the period from 2001 onwards. Our results from this parametric framework corroborate our non-parametric findings, yielding the stock market returns and the term spread as the single more powerful predictor on a country and euro area basis, respectively.

Keywords: Granger causality; forecasting accuracy; money supply; output growth; term spread; stock returns (search for similar items in EconPapers)
Date: 2006-11-16
New Economics Papers: this item is included in nep-ecm and nep-for
Note: Length:
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.tcd.ie/triss/assets/PDFs/iiis/iiisdp178.pdf (application/pdf)

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:iis:dispap:iiisdp178

Access Statistics for this paper

More papers in The Institute for International Integration Studies Discussion Paper Series from IIIS 01. Contact information at EDIRC.
Bibliographic data for series maintained by Maeve (triss@tcd.ie).