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Financial conditions and economic activity: a statistical approach

  • Magdalena Erdem
  • Kostas Tsatsaronis

How do conditions in the financial sector affect the macroeconomy? We summarise the common variation in a large array of financial variables into a small set of statistical factors and examine the information content of these factors when forecasting GDP and inflation in four economies. We find that financial factors contain information that is independent of and complementary to that in real variables. This information accounts for a larger proportion of the movement in real and nominal GDP, but a smaller proportion of the variability of inflation.

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Article provided by Bank for International Settlements in its journal BIS Quarterly Review.

Volume (Year): (2013)
Issue (Month): (March)
Pages:

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Handle: RePEc:bis:bisqtr:1303f
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  16. Stéphanie Guichard & David Turner, 2008. "Quantifying the Effect of Financial Conditions on US Activity," OECD Economics Department Working Papers 635, OECD Publishing.
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