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

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  • Junttila, Juha

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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File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0202.pdf
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Bibliographic Info

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
Date of revision:
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.suomenpankki.fi/en/
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Keywords: financial markets; forecasting; macroeconomy; euro area; USA;

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References

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Citations

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Cited by:
  1. Junttila, Juha & Kinnunen, Heli, 2004. "The performance of economic tracking portfolios in an IT-intensive stock market," The Quarterly Review of Economics and Finance, Elsevier, vol. 44(4), pages 601-623, September.
  2. Keloharju, Matti & Malkamäki, Markku & Nyborg, Kjell G. & Rydqvist, Kristian, 2002. "A descriptive analysis of the Finnish treasury bond market 1991–1999," Research Discussion Papers 16/2002, Bank of Finland.
  3. Peik Granlund, 2004. "Bank exit legislation in US, EU and Japanese financial centres," Finance 0405015, EconWPA.
  4. 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.
  5. Mikko Niskanen, 2004. "Lender of last resort and the moral hazard problem," Macroeconomics 0405016, EconWPA.
  6. Kauko, Karlo, 2002. "Links between securities settlement systems: An oligopoly theoretic approach," Research Discussion Papers 27/2002, Bank of Finland.
  7. 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.

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