Forecasting Output and Inflation: The Role of Asset Prices
James H. Stock
Journal of Economic Literature
no. 3, September 2003
Are asset prices useful predictors of inflation and real output growth? After reviewing the large literature on this topic, we undertake an empirical analysis of quarterly data for seven OECD countries spanning 1959-99. The literature review and the empirical analysis yield the same conclusions. Some asset prices predict inflation or output growth in some countries in some periods. Which series predicts what, when, and where is difficult to predict; being a good predictor historically is largely unrelated to subsequent performance. Intriguingly, forecasts that combine these individually unstable forecasts appear to improve reliably upon univariate benchmarks.
Stock, James, H., and Mark WWatson.
"Forecasting Output and Inflation: The Role of Asset Prices."
Journal of Economic Literature,
Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications
Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
Forecasting Models; Simulation Methods
Price Level; Inflation; Deflation
Financial Markets and the Macroeconomy
Asset Pricing; Trading Volume; Bond Interest Rates