Financial information and macroeconomic forecasts

Abstract

We study the forecasting power of financial variables for macroeconomic variables in 62 countries between 1980 and 2013. We find that financial variables such as credit growth, stock prices, and house prices have considerable predictive power for macroeconomic variables at the one- to four-quarter horizons. A forecasting model that includes financial variables outperforms the World Economic Outlook (WEO) forecasts in up to 85% of our sample countries at the four-quarter horizon. We also find that cross-country panel models produce more accurate out-of-sample forecasts than individual country models.