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A Reevaluation of Financial Variables' Predictive Content for the U.S. Economy


  • Douyoung Lee

    (Texas A&M University, Department of Economics)


This paper reevaluates the predictive content of financial variables and unconventional monetary policy measures for the U.S. output growth and inflation before, during, and after the Great Recession from 1960-2015. The credit spread, stock price, and market expectation measures predicted output growth and inflation change significantly better than an AR model during the Great Recession. This study shows that the Great Recession was primarily driven by a financial shock and market sentiment shock; the market expectation measures, liquidity risk, and credit risk were important indicators during the financial crisis, compared to the previous recessionary periods.

Suggested Citation

  • Douyoung Lee, 2016. "A Reevaluation of Financial Variables' Predictive Content for the U.S. Economy," Working Papers 20161029-001, Texas A&M University, Department of Economics.
  • Handle: RePEc:txm:wpaper:20161029-001

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    File Function: First version, 2016
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    More about this item


    Output growth forecasts; Inflation forecasts; Forecast evaluation; Real-time data;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications


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