Abstract
GDP is the most important and widely studied macroeconomic variable. It indicates the state of an economy and is used as a measure of the economic strength of a country. Due to its comprehensive nature, calculating GDP takes a great deal of work and is often revised over time. This has led to the common practice of forecasting GDP using econometric models. This paper introduces a new method for estimating GDP using a unique data set of options whose values are determined by the levels of GDP and the GDP growth rate. The option is market priced which makes it distinct since it is available daily, subject to no revisions and aggregates the market’s opinion about GDP. These option implied values for GDP and GDP growth rate are similar to the concept of implied volatilities. We show that this option improves the GDP growth rate forecasts by 21% compared to conventional econometric models.
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