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Financial variables as leading indicators of GDP growth: Evidence from a MIDAS approach during the Great Recession

Author

Listed:
  • Laurent Ferrara

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

  • Clément Marsilli

Abstract

The global economic recession, referred to as the Great Recession, endured by the main industrialized countries during the period 2008-09, in the wake of the financial and banking crises, has pointed out the current importance of the financial sector in macroeconomics. In this article, we evaluate the predictive power of some major financial variables to anticipate GDP growth in euro area countries during this specific period of time. In this respect, we implement a Mixed Data Sampling (MIDAS)-based modelling approach, put forward by Ghysels et al. (2007), that enables to forecast quarterly Gross Domestic Product (GDP) growth rates using exogenous variables sampled at higher frequencies. Empirical results show that, overall, stock prices help to improve the accuracy of GDP forecasts by comparison with a standard opinion survey variable, whereas oil prices and term spread appear to be less informative.

Suggested Citation

  • Laurent Ferrara & Clément Marsilli, 2013. "Financial variables as leading indicators of GDP growth: Evidence from a MIDAS approach during the Great Recession," Post-Print hal-01385844, HAL.
    • Handle: RePEc:hal:journl:hal-01385844
    DOI: 10.1080/13504851.2012.689099
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    Cited by:

    1. Deimante Teresiene & Greta Keliuotyte-Staniuleniene & Yiyi Liao & Rasa Kanapickiene & Ruihui Pu & Siyan Hu & Xiao-Guang Yue, 2021. "The Impact of the COVID-19 Pandemic on Consumer and Business Confidence Indicators," JRFM, MDPI, vol. 14(4), pages 1-23, April.
    2. Mogliani, Matteo & Darné, Olivier & Pluyaud, Bertrand, 2017. "The new MIBA model: Real-time nowcasting of French GDP using the Banque de France's monthly business survey," Economic Modelling, Elsevier, vol. 64(C), pages 26-39.
    3. Mittal, Amit & Garg, Ajay Kumar, 2021. "Bank stocks inform higher growth—A System GMM analysis of ten emerging markets in Asia," The Quarterly Review of Economics and Finance, Elsevier, vol. 79(C), pages 210-220.
    4. Ferrara, Laurent & Marsilli, Clément & Ortega, Juan-Pablo, 2014. "Forecasting growth during the Great Recession: is financial volatility the missing ingredient?," Economic Modelling, Elsevier, vol. 36(C), pages 44-50.
    5. Morita, Hiroshi, 2022. "Forecasting GDP growth using stock returns in Japan: A factor-augmented MIDAS approach," Discussion paper series HIAS-E-118, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.
    6. Athanassios Petralias & Sotirios Petros & Pródromos Prodromídis, 2013. "Greece in Recession: Economic predictions, mispredictions and policy implications," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 75, Hellenic Observatory, LSE.
    7. Laurent Ferrara & Clément Marsilli, 2019. "Nowcasting global economic growth: A factor‐augmented mixed‐frequency approach," The World Economy, Wiley Blackwell, vol. 42(3), pages 846-875, March.
    8. Biswas, Rita & Loungani, Prakash & Liang, Zhongwen & Michaelides, Michael, 2024. "Linkages between financial and macroeconomic indicators in emerging markets and developing economies," Global Finance Journal, Elsevier, vol. 62(C).
    9. Özgür Ömer Ersin & Melike Bildirici, 2023. "Financial Volatility Modeling with the GARCH-MIDAS-LSTM Approach: The Effects of Economic Expectations, Geopolitical Risks and Industrial Production during COVID-19," Mathematics, MDPI, vol. 11(8), pages 1-26, April.
    10. Mittal, Amit & Garg, Ajay Kumar, 2018. "Bank stocks inform higher growth – A System GMM analysis of ten emerging markets in Asia," MPRA Paper 98253, University Library of Munich, Germany.
    11. Donato Ceci & Orest Prifti & Andrea Silvestrini, 2024. "Nowcasting Italian GDP growth: a Factor MIDAS approach," Temi di discussione (Economic working papers) 1446, Bank of Italy, Economic Research and International Relations Area.
    12. Gong, Yuting & Chen, Qiang & Liang, Jufang, 2018. "A mixed data sampling copula model for the return-liquidity dependence in stock index futures markets," Economic Modelling, Elsevier, vol. 68(C), pages 586-598.
    13. Clément Marsilli, 2014. "Variable Selection in Predictive MIDAS Models," Working papers 520, Banque de France.
    14. Karim Barhoumi & Olivier Darné & Laurent Ferrara, 2014. "Dynamic factor models: A review of the literature," OECD Journal: Journal of Business Cycle Measurement and Analysis, OECD Publishing, Centre for International Research on Economic Tendency Surveys, vol. 2013(2), pages 73-107.

    More about this item

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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