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What does a financial system say about future economic growth?

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  • Grabowski, Szymon
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    Abstract

    In many research studies it is argued that it is possible to extract useful information about future economic growth from the performance of financial markets. However, this study goes further and shows that it is not only possible to use expectations derived from financial markets to forecast future economic growth, but that data about the financial system can be used for this purpose as well. The research is conducted for the Polish emerging economy on the basis of monthly data. The results suggest that, based purely on the data from the financial system, it is possible to construct reasonable measures that can, even for an emerging economy, effectively forecast future real economic activity. The outcomes are proved by two various econometric methods, namely, by a time series analysis and by a probit model. All presented models are tested in-sample and out-of-sample.

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    File URL: http://mpra.ub.uni-muenchen.de/12834/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11560.

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    Date of creation: 12 Sep 2008
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    Handle: RePEc:pra:mprapa:11560

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    Keywords: CCAPM; economic growth; financial markets; term spreads; expectations; forecasting;

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    7. Mehl, Arnaud, 2006. "The yield curve as a predictor and emerging economies," BOFIT Discussion Papers 18/2006, Bank of Finland, Institute for Economies in Transition.
    8. Campbell R. Harvey, 1997. "The Relation between the Term Structure of Interest Rates and Canadian Economic Growth," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 169-93, February.
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    11. Juan Ignacio Pena & Rosa Rodriguez, 2006. "On The Economic Link Between Asset Prices And Real Activity," Business Economics Working Papers wb063209, Universidad Carlos III, Departamento de Economía de la Empresa.
    12. repec:pra:mprapa:4714 is not listed on IDEAS
    13. James Orr & Robert Rich & Rae Rosen, 2001. "Leading economic indexes for New York State and New Jersey," Economic Policy Review, Federal Reserve Bank of New York, issue Mar, pages 73-94.
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