Premium
Forecasting the macroeconomy with contemporaneous financial market information: Europe and the United States
Author(s) -
Junttila Juha
Publication year - 2006
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2006.05.001
Subject(s) - economics , inflation (cosmology) , industrial production , consensus forecast , financial market , economic forecasting , finance , production (economics) , macroeconomics , econometrics , physics , theoretical physics
Abstract Using Economic Tracking Portfolios (ETP), I find that it is possible to forecast future values of inflation and changes in industrial production in the United States and three core euro countries – Italy, France and Germany – utilizing only current and past financial market information. The longer the forecasting horizon, the better the forecasts based solely on financial market information compared to results from other methods. Of the countries I analyze, the overall forecasting performance of the tracking portfolios is the best for the U.S., and my method outperforms the forecasting performance of a VAR approach.