Financial Variables and the Simulated Out-of-Sample Forecastability of U.S. Output Growth Since 1985: An Encompassing Approach
We reconsider the out-of-sample forecasting ability of a large number of financial variables with respect to real output growth over the 1985:1--1999:4 period. We show that models including financial variables display almost no forecasting ability relative to an autoregressive benchmark model over this period according to a mean squared forecast error metric. However, tests based on forecast encompassing indicate that many financial variables do, in fact, contain information that is useful for forecasting real output growth over the 1985:1--1999:4 out-of-sample period. Our results suggest that the extant literature exaggerates the demise of the forecasting power of financial variables with respect to real activity since the mid-1980s. (JEL C22, C53, E44, E32) Copyright 2004, Oxford University Press.
Volume (Year): 42 (2004)
Issue (Month): 4 (October)
|Contact details of provider:|| Postal: |
Fax: 01865 267 985
Web page: http://ei.oupjournals.org/
More information through EDIRC
|Order Information:||Web: http://www.oup.co.uk/journals|
When requesting a correction, please mention this item's handle: RePEc:oup:ecinqu:v:42:y:2004:i:4:p:717-738. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.