Financial Information and Macroeconomic Forecasts

IMF Working Papers, December 23, 2016

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Study of the forecasting power of financial variables for macroeconomic variables for 62 countries between 1980 and 2013.
Focus on financial variables: credit growth, stock prices, and house prices.
Forecast horizons examined: one to four quarters.

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 the sample countries at the four quarters horizon.
Cross-country panel models produce more accurate out-of-sample forecasts than individual country models.

Incorporating financial variables (credit growth, stock prices, house prices) can materially improve short-term macroeconomic forecasting accuracy up to four quarters ahead.
Cross-country panel modelling approaches can enhance forecast performance relative to country-by-country models, suggesting benefits from pooling information across countries for macroeconomic projection exercises.

Subjects: Asset prices, Bond yields, Credit, Financial institutions, Government consumption, Housing prices, Money, National accounts, Prices, Yield curve.
Keywords (as provided): Asset prices, Bond yields, center, corporate bond bond yield, Credit, Credit Growth, Financial Markets and the Macroeconomy, GDP deflator, Global, Government consumption, House Price, house price growth, Housing prices, Macroeconomic Forecasting, no., No. of obs, sovereign bond bond yield, standard deviation, Stock Price, stock price growth, WP.

Financial Information and Macroeconomic Forecasts
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- Financial Information and Macroeconomic Forecasts (PDF)