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Utilizing financial market information in forecasting real growth, inflation and real exchange rate

  • Junttila, Juha
  • Korhonen, Marko

In this paper we build an open economy extension of the Gordon (1962) valuation model that suggests a simple forecasting system for three macroeconomic variables; the real growth, inflation and real exchange rate. All the forecasting equations in our system utilize current financial market information in the form of dividend yields and short-term interest rate. Our empirical results indicate that these simple forms of financial market information are relevant for forecasting the time-varying underlying trends in the macroeconomic data for the U.K., Eurozone and Japan, when treating the U.S. as the world market.

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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 20 (2011)
Issue (Month): 2 (April)
Pages: 281-301

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Handle: RePEc:eee:reveco:v:20:y:2011:i:2:p:281-301
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