Abstract
The paper provides probability estimates of the state of the GDP growth. A regime-switching model defines the probability of the Greek GDP being in boom or recession. Then probit models extract the predictive information of a set of explanatory (economic and financial) variables regarding the state of the GDP growth. A contemporaneous, as well as a lagged, relationship between the explanatory variables and the state of the GDP growth is conducted. The mean absolute distance (MAD) between the probability of not being in recession and the probability estimated by the probit model is the function that evaluates the performance of the models. The probit model with the industrial production index and the realized volatility as the explanatory variables has the lowest MAD value of 6.43% (7.94%) in the contemporaneous (lagged) relationship.
Highlights
IntroductionThe present paper provides an empirical investigation of the relationship between GDP growth and macroeconomic and financial variables
Macro-finance analysts are highly interested for the reversal points of GDP growth
The present paper provides an empirical investigation of the relationship between GDP growth and macroeconomic and financial variables
Summary
The present paper provides an empirical investigation of the relationship between GDP growth and macroeconomic and financial variables. We explore the ability of macroeconomic and financial variables to report to analysts the probability of GDP being in a boom environment. A probit regression model transforms the economic and financial variables into information that expresses the probability of the economy not being in recession; in other words the probability of q-o-q GDP being positive. The variables that provide the most powerful contemporaneous information for the state of GDP growth are the industrial production and the stock market realized volatility.
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