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Short‐term forecasts of euro area GDP growth

  • Elena Angelini
  • Gonzalo Camba‐Mendez
  • Domenico Giannone
  • Lucrezia Reichlin
  • Gerhard Rünstler

Global financial integration unlocks a huge potential for international risk sharing. We examine the degree to which international equity holdings act as a risk sharing device in industrial and emerging economies. We split equity returns into investment income (dividend distribution) and capital gains to investigate which of the two channels delivers the largest potential for risk sharing. Our evidence suggests that net capital gains are a more potent channel of risk sharing. They behave in a countercyclical way, that is they tend to be positive (negative) when the domestic economy is growing more slowly (rapidly) than the rest of the world. Countries with more countercyclical net capital gains experience improved consumption risk sharing. The empirical analysis furthermore suggests that these risk sharing properties of net capital gains have increased through time, in particular in the 1990s and early-2000s, on the back of a declining equity home bias and financial market deepening. JEL Classification: E52, C33, C53

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File URL: http://hdl.handle.net/10.1111/j.1368-423X.2010.00328.x
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Article provided by Royal Economic Society in its journal The Econometrics Journal.

Volume (Year): 14 (2011)
Issue (Month): 1 (February)
Pages: C25-C44

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Handle: RePEc:ect:emjrnl:v:14:y:2011:i:1:p:c25-c44
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  1. Baffigi, Alberto & Golinelli, Roberto & Parigi, Giuseppe, 2004. "Bridge models to forecast the euro area GDP," International Journal of Forecasting, Elsevier, vol. 20(3), pages 447-460.
  2. Kitchen, John & Monaco, Ralph, 2003. "Real-Time Forecasting in Practice: The U.S. Treasury Staff's Real-Time GDP Forecast System," MPRA Paper 21068, University Library of Munich, Germany, revised Oct 2003.
  3. Artis, Michael J & Banerjee, Anindya & Marcellino, Massimiliano, 2002. "Factor Forecasts for the UK," CEPR Discussion Papers 3119, C.E.P.R. Discussion Papers.
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  5. Diron, Marie, 2006. "Short-term forecasts of euro area real GDP growth: an assessment of real-time performance based on vintage data," Working Paper Series 0622, European Central Bank.
  6. Doz, Catherine & Giannone, Domenico & Reichlin, Lucrezia, 2006. "A Quasi Maximum Likelihood Approach for Large Approximate Dynamic Factor Models," CEPR Discussion Papers 5724, C.E.P.R. Discussion Papers.
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  8. David Hendry & Michael Clements, 2001. "Pooling of Forecasts," Economics Series Working Papers 2002-W09, University of Oxford, Department of Economics.
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  10. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
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  12. Banbura, Marta & Rünstler, Gerhard, 2011. "A look into the factor model black box: Publication lags and the role of hard and soft data in forecasting GDP," International Journal of Forecasting, Elsevier, vol. 27(2), pages 333-346, April.
  13. Rünstler, Gerhard & Sédillot, Franck, 2003. "Short-term estimates of euro area real GDP by means of monthly data," Working Paper Series 0276, European Central Bank.
  14. Christian Schumacher, 2007. "Forecasting German GDP using alternative factor models based on large datasets," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 26(4), pages 271-302.
  15. A. C. Harvey & Siem Jan Koopman, 2000. "Computing Observation Weights for Signal Extraction and Filtering," Econometric Society World Congress 2000 Contributed Papers 0888, Econometric Society.
  16. Domenico Giannone & Lucrezia Reichlin & David Small, 2005. "Nowcasting GDP and inflation: the real-time informational content of macroeconomic data releases," Finance and Economics Discussion Series 2005-42, Board of Governors of the Federal Reserve System (U.S.).
  17. n/a, 2002. "Credibility of the Russian Stabilisation Programme in 1995-98," NIESR Discussion Papers 149, National Institute of Economic and Social Research.
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