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Forecasting Economic Growth: Evidence from housing, banking, and credit conditions

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  • Ujjal Chatterjee

    (University of Trento)

Abstract

Previous studies on economic growth have separately examined the role of housing, banking, and credit market conditions, despite their interrelatedness. Therefore, this paper comprehensively investigates the relative importance of four indicators [house prices, residential investment, corporate credit spreads, and aggregate bank liquidity creation (LC)] to forecast U.S. real GDP growth. We do so after accounting for a comprehensive set of other predictors and aim to identify indicators that better forecast economic growth. Our in-and out-of-sample results show that house prices and corporate credit spreads predict real GDP growth better than residential investment and LC. Moreover, shocks to house prices and corporate credit spreads have a greater impact on real GDP growth and other macroeconomic indicators than shocks to LC and residential investment. Furthermore, house prices have the largest positive impact on inflation and the largest negative effect on unemployment. These results may have potential monetary policy implications.

Suggested Citation

  • Ujjal Chatterjee, 2023. "Forecasting Economic Growth: Evidence from housing, banking, and credit conditions," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(4), pages 936-958, December.
    • Handle: RePEc:spr:jecfin:v:47:y:2023:i:4:d:10.1007_s12197-023-09637-8
    DOI: 10.1007/s12197-023-09637-8
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    More about this item

    Keywords

    House Prices; Residential Investment; Credit Supply; Bank Liquidity Creation; Economic Growth; Inflation; Monetary Policy;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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