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Forecasting the macroeconomy with current financial market information: Europe and the United States

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Author Info
Junttila, Juha

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Abstract

Using recently developed modelling methodology of Economic Tracking Portfolios (ETP), we find that it is possible to forecast future values of inflation and changes in industrial production in the United States and at least three core euro countries – Italy, France and Germany – utilising only current and past financial market information. The longer the forecasting horizon, the better the forecasts based solely on financial market information compared to results from other methods. Of the analysed countries, the overall forecasting performance of the tracking portfolios is the best for the United States, and the method employed here clearly outperforms the forecasting performance of a more traditional VAR approach.

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Paper provided by Bank of Finland in its series Research Discussion Papers with number 2/2002.

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Length: 73 pages
Date of creation: 18 Feb 2002
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Handle: RePEc:hhs:bofrdp:2002_002

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Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
Web page: http://www.bof.fi/en/tutkimus
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Related research
Keywords: financial markets forecasting macroeconomy euro area USA

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Find related papers by JEL classification:
C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Other Model Applications
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kauko, Karlo, 2002. "Links between securities settlement systems: An oligopoly theoretic approach," Research Discussion Papers 27/2002, Bank of Finland. [Downloadable!]
  2. Fabio ALESSANDRINI, 2003. "Do Financial Variables Provide Information about the Swiss Business Cycle ?," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 03.02, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
  3. Peik Granlund, 2004. "Bank exit legislation in US, EU and Japanese financial centres," Finance 0405015, EconWPA. [Downloadable!]
  4. Mikko Niskanen, 2004. "Lender of last resort and the moral hazard problem," Macroeconomics 0405016, EconWPA. [Downloadable!]
  5. Karlo Kauko, 2004. "Links between securities settlement systems: An oligopoly theoretic approach," Industrial Organization 0405003, EconWPA. [Downloadable!]
  6. Männistö , Hanna-Leena, 2005. "Forecasting with a forward-looking DGE model: combining long-run views of financial markets with macro forecasting," Research Discussion Papers 21/2005, Bank of Finland. [Downloadable!]
  7. Granlund , Peik, 2002. "Bank exit legislation in US, EU and Japanese financial centres," Research Discussion Papers 25/2002, Bank of Finland. [Downloadable!]
  8. Matti Keloharju & Markku Malkamäki & Kjell G. Nyborg & Kristian Rydqvist, 2004. "A descriptive analysis of the Finnish treasury bond market 1991–1999," Finance 0405017, EconWPA. [Downloadable!]
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