Journal of Economic Literature
ISSN 0022-0515 (Print) | ISSN 2328-8175 (Online)
Forecasting Output and Inflation: The Role of Asset Prices
Journal of Economic Literature
(pp. 788–829)
Abstract
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.Citation
Stock, James, H., and Mark WWatson. 2003. "Forecasting Output and Inflation: The Role of Asset Prices." Journal of Economic Literature 41 (3): 788–829. DOI: 10.1257/002205103322436197JEL Classification
- E27 Macroeconomics: Consumption, Saving, Production, Employment, and Investment: Forecasting and Simulation: Models and Applications
- E37 Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
- C53 Forecasting Models; Simulation Methods
- E23 Macroeconomics: Production
- E31 Price Level; Inflation; Deflation
- E44 Financial Markets and the Macroeconomy
- G12 Asset Pricing; Trading Volume; Bond Interest Rates