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Extracting growth and inflation expectations from financial market data

Author

Listed:
  • Lauri Kajanoja

    (Bank of Finland)

Abstract

This study presents a framework for extracting long-run GDP growth and inflation expectations from financial market data on a real-time basis. The framework uses information from both stock and bond markets. It builds on a dividend discount model of stock valuation and on a linearized consumption Euler equation. Furthermore, expected long-run dividend growth for a broad equity index is assumed to be related to expected long-run GDP growth. Short-run and long-run dividend growth expectations are allowed to differ. The former are measured using equity index futures. We extract growth and inflation expectations for the euro area and for the United States.

Suggested Citation

  • Lauri Kajanoja, 2004. "Extracting growth and inflation expectations from financial market data," Macroeconomics 0404021, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0404021
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    References listed on IDEAS

    as
    1. Brian P. Sack, 2000. "Deriving inflation expectations from nominal and inflation-indexed Treasury yields," Finance and Economics Discussion Series 2000-33, Board of Governors of the Federal Reserve System (U.S.).
    2. John Y. Campbell & Robert J. Shiller, 2001. "Valuation Ratios and the Long-Run Stock Market Outlook: An Update," NBER Working Papers 8221, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Mikko Puhakka, 2005. "Equilibrium dynamics under lump-sum taxation in an exchange economy with skewed endowments," Macroeconomics 0508033, University Library of Munich, Germany.
    2. Jokivuolle, Esa & Lanne, Markku, 2004. "Trading Nokia : the roles of the Helsinki vs the New York stock exchanges," Research Discussion Papers 26/2004, Bank of Finland.
    3. Mälkönen, Ville, 2004. "The efficiency implications of financial conglomeration," Research Discussion Papers 17/2004, Bank of Finland.
    4. Männistö, Hanna-Leena, 2005. "Forecasting with a forward-looking DGE model : combining long-run views of financial markes with macro forecasting," Research Discussion Papers 21/2005, Bank of Finland.
    5. Suvanto, Antti & Hukkinen, Juhana, 2004. "Stable price level and changing prices," Bank of Finland Research Discussion Papers 28/2004, Bank of Finland.
    6. Puhakka, Mikko, 2004. "Equilibrium dynamics under lump-sum taxation in an exchange economy with skewed endowments," Research Discussion Papers 29/2004, Bank of Finland.
    7. Leitemo, Kai & Söderström, Ulf, 2008. "Robust Monetary Policy In The New Keynesian Framework," Macroeconomic Dynamics, Cambridge University Press, vol. 12(S1), pages 126-135, April.
    8. Mayes, David & Virén, Matti, 2004. "Asymmetries in the Euro area economy," Bank of Finland Research Discussion Papers 9/2004, Bank of Finland.
    9. David G. Mayes & Matti Virén, 2004. "Asymmetries in the Euro area economy," Macroeconomics 0404024, University Library of Munich, Germany.
    10. Paloviita, Maritta & Mayes, David, 2005. "The use of real-time information in Phillips-curve relationships for the euro area," The North American Journal of Economics and Finance, Elsevier, vol. 16(3), pages 415-434, December.
    11. Dzmitry Kruk, 2016. "SVAR Approach for Extracting Inflation Expectations Given Severe Monetary Shocks: Evidence from Belarus," BEROC Working Paper Series 39, Belarusian Economic Research and Outreach Center (BEROC).
    12. Erkki Koskela & Roope Uusitalo, 2003. "The Un-Intended Convergence: How the Finnish Unemployment Reached the European Level," CESifo Working Paper Series 878, CESifo.
    13. Suvanto, Antti & Hukkinen, Juhana, 2004. "Stable price level and changing prices," Research Discussion Papers 28/2004, Bank of Finland.
    14. Männistö, Hanna-Leena, 2005. "Forecasting with a forward-looking DGE model: combining long-run views of financial markes with macro forecasting," Bank of Finland Research Discussion Papers 21/2005, Bank of Finland.
    15. Bagella, Michele & Becchetti, Leonardo & Hasan, Iftekhar, 2004. "The anticipated and concurring effects of the EMU: exchange rate volatility, institutions and growth," Journal of International Money and Finance, Elsevier, vol. 23(7-8), pages 1053-1080.
    16. Hyytinen, Ari & Takalo, Tuomas, 2004. "Multihoming in the Market for Payment Media: Evidence from Young Finnish Consumers," Discussion Papers 893, The Research Institute of the Finnish Economy.
    17. Mälkönen, Ville, 2004. "Capital adequacy regulation and financial conglomerates," Research Discussion Papers 10/2004, Bank of Finland.
    18. Taipalus, Katja, 2006. "Bubbles in the Finnish and US equities markets," Scientific Monographs, Bank of Finland, number 35/2006.

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    More about this item

    Keywords

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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