IMF Working Papers

Financial Information and Macroeconomic Forecasts

Author/Editor:

Sophia Chen ; Romain Ranciere

Publication Date:

December 23, 2016

Electronic Access:

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Summary:

We study the forecasting power of financial variables for macroeconomic variables for 62 countries between 1980 and 2013. We find that financial variables such as credit growth, stock prices and house prices have considerable predictive power for macroeconomic variables at one to four quarters horizons. A forecasting model with financial variables outperforms the World Economic Outlook (WEO) forecasts in up to 85 percent of our sample countries at the four quarters horizon. We also find that cross-country panel models produce more accurate out-of-sample forecasts than individual country models.

Series:

Working Paper No. 16/251

Subject:

Credit expansion Developed countries Economic forecasting Emerging markets Forecasting models Housing prices Low-income developing countries Stock prices Time series Variables (Mathematics)