Extracting growth and inflation expectations from financial market data

Lauri Kajanoja

No 2/2004, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: This study presents a framework for extracting long-run GDP growth and inflation expectations from financial market data on a real-time basis.The framework uses information from both stock and bond markets.It builds on a dividend discount model of stock valuation and on a linearized consumption Euler equation. Furthermore, expected long-run dividend growth for a broad equity index is assumed to be related to expected long-run GDP growth. Short-run and long-run dividend growth expectations are allowed to differ.The former are measured using equity index futures.We extract growth and inflation expectations for the euro area and for the United States.

Keywords: inflation expectations; growth expectations; equity index futures (search for similar items in EconPapers)
JEL-codes: E31 E44 E66 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (1)

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