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The role of stock markets vs. the term spread in forecasting macrovariables in Finland

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  • Kuosmanen, Petri
  • Vataja, Juuso

Abstract

A substantial body of stylized facts and empirical evidence exists regarding the relationships between financial variables and the macroeconomy in the United States. However, the question of whether this evidence is consistent with the cases of small open economies is less known. This paper focuses on the forecasting content of stock returns and volatility vs. the term spread for GDP, private consumption, industrial production and the inflation rate in Finland. Our results suggest that during normal times, the term spread is a much better tool than stock market variables for predicting real activity. However, during exceptional times, such as the recent financial crisis, the forecast performance is improved by combining the term spread and the stock market information.

Suggested Citation

  • Kuosmanen, Petri & Vataja, Juuso, 2011. "The role of stock markets vs. the term spread in forecasting macrovariables in Finland," The Quarterly Review of Economics and Finance, Elsevier, vol. 51(2), pages 124-132, May.
  • Handle: RePEc:eee:quaeco:v:51:y:2011:i:2:p:124-132
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    References listed on IDEAS

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    Cited by:

    1. Kuosmanen, Petri & Vataja, Juuso, 2014. "Forecasting GDP growth with financial market data in Finland: Revisiting stylized facts in a small open economy during the financial crisis," Review of Financial Economics, Elsevier, vol. 23(2), pages 90-97.
    2. Kuosmanen, Petri & Nabulsi, Nasib & Vataja, Juuso, 2015. "Financial variables and economic activity in the Nordic countries," International Review of Economics & Finance, Elsevier, vol. 37(C), pages 368-379.
    3. Babajide Abiola Ayopo & Lawal Adedoyin Isola & Somoye Russel Olukayode, 2016. "Stock Market Response to Economic Growth and Interest Rate Volatility: Evidence from Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 6(1), pages 354-360.
    4. Jiranyakul, Komain, 2012. "The Predictive Role of Stock Market Return for Real Activity in Thailand," MPRA Paper 45670, University Library of Munich, Germany.
    5. repec:kap:ecopln:v:50:y:2017:i:3:d:10.1007_s10644-017-9212-7 is not listed on IDEAS

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