What do asset prices tell us about the future?
AbstractIt is fairly obvious that in market-based economies prices act as a constraint on individual behavior, providing a means by which goods and services flow to those most willing and able to pay for them. But prices play an additional role in the economy-that of signaling the present and expected future state of affairs. Having accurate forecast information is particularly important to policymakers, who are concerned with acting in advance to avoid bad economic outcomes rather than simply reacting to events. ; This article reviews the theoretical literature regarding the extent to which asset prices aggregate information and examines evidence on the ability of financial asset prices to forecast inflation, real output or consumption, and recessions. Given the available evidence, the author finds it difficult to argue that monetary policymakers should give more weight to financial market variables. What can be argued is that, according to theory, financial asset prices should aggregate at least some information about future performance of economically important variables. ; The author concludes that more work is needed along both theoretical and statistical lines for collectively figuring out what role, if any, financial asset prices or yields should play in forecasts used in conducting policy. Meanwhile, these variables will remain at most a source of information that policymakers can choose to use as a supplement to more traditional indicators.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Federal Reserve Bank of Atlanta in its journal Economic Review.
Volume (Year): (1999)
Issue (Month): Q3 ()
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Greg Tkacz & Carolyn Wilkins, 2006. "Linear and Threshold Forecasts of Output and Inflation with Stock and Housing Prices," Working Papers 06-25, Bank of Canada.
- Ekaterini Panopoulou & Nikitas Pittis & Sarantis Kalyvitis, 2010.
"Looking far in the past: revisiting the growth-returns nexus with non-parametric tests,"
Springer, vol. 38(3), pages 743-766, June.
- Ekaterini Panopoulou & N. Pittis & S. Kalyvitis, 2006. "Looking far in the past:Revisiting the growth-returns nexus with non-parametric tests," Economics, Finance and Accounting Department Working Paper Series n1660306, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
- Ekaterini Panopoulou & Nikitas Pittis & Sarantis Kalyvitis, 2006. "Looking far in the past: Revisiting the growth-returns nexus with non-parametric tests," The Institute for International Integration Studies Discussion Paper Series iiisdp134, IIIS.
- Ramdane Djoudad & Jack Selody & Carolyn Wilkins, 2005. "Does Financial Structure Matter for the Information Content of Financial Indicators?," Working Papers 05-33, Bank of Canada.
- Hassapis, Christis & Kalyvitis, Sarantis, 2002. "Investigating the links between growth and real stock price changes with empirical evidence from the G-7 economies," The Quarterly Review of Economics and Finance, Elsevier, vol. 42(3), pages 543-575.
- Sara G. Castellanos & Eduardo Camero, 2003. "La estructura temporal de tasas de interés en México: ¿Puede predecir la actividad económica futura?," Revista de Analisis Economico – Economic Analysis Review, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines, vol. 18(2), pages 33-66, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Meredith Rector).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.