Research Discussion Papers, Bank of Finland
No 2/2002:
Forecasting the macroeconomy with current financial market information: Europe and the United States
Juha Junttila
Abstract: Using recently developed modelling methodology of Economic
Tracking Portfolios (ETP), we find that it is possible to forecast future
values of inflation and changes in industrial production in the United
States and at least three core euro countries – Italy, France and Germany –
utilising 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 analysed
countries, the overall forecasting performance of the tracking portfolios
is the best for the United States, and the method employed here clearly
outperforms the forecasting performance of a more traditional VAR
approach.
Keywords: financial markets; forecasting; macroeconomy; euro area; USA; (follow links to similar papers)
JEL-Codes: C53; E44; G15; (follow links to similar papers)
73 pages, February 18, 2002
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