Future Output Growth Research Articles

Are financial spreads useful indicators of future inflation and output growth in EU countries?

This paper seeks to address the policy issue of the usefulness of financial spreads as indicators of future inflation and output growth in the countries of the European Union, placing a particular focus on out-of-sample forecasting performance. Such analysis is of considerable relevance to monetary authorities, given the breakdown of the money/income relation in a number of countries and following increased emphasis of domestic monetary policy on control of inflation following the broadening of the ERM bands. The results confirm that for some countries, financial spread variables do contain some information about future output growth and inflation, with the yield curve and the reverse yield gap performing best. However, the relatively poor out-of-sample forecasting performance and/or parameter instability suggests that the need for caution in using spread variables for forecasting in EU countries. Only a small number of spreads contain information, and improve forecasting in a manner which is stable over time. © 1997 John Wiley & Sons, Ltd.

Money, interest rate spreads, and economic activity

Money, Interest Rate Spreads, and Economic Activity. —Numerous empirical studies for industrial countries have shown that the term structure of interest rates is a good indicator for future output growth. This paper analyzes whether the interest rate spread contains any additional predictive power if the model includes the money stock. A multivariate error-correction framework is applied to three European economies — France, Germany, and Italy. Granger causality tests are performed for various monetary aggregates and the term structure. The evidence concerning the marginal information content is mixed: For France and Italy, the term structure does not improve the results of the basic model whereas it is significant for Germany.

Das Produktionspotential in Ostdeutschland

Potential output is an elusive concept. This stands in sharp contrast to its prominent role in economic analysis. In particular, monetary targetting as practised by the Deutsche Bundesbank relies on an estimate of future potential output growth. Different approaches usually lead to fairly similar results in the case of deep-rooted and evenly developing market economies such as West Germany. In this paper we have a stab at estimating potential output for East Germany since unification in mid-1990, using some variants of these techniques. As will be shown, the results can so far not be reconciled with stylized outcomes such as a low variance of growth rates and output gaps that by and large average out over the sampie period ...

External Debt, Inflation, and the Public Sector: Toward Fiscal Policy for Sustainable Growth

Which tradeoffs are involved in formulating an external debt strategy? Should expenditure be cut to improve the current account, or will this reduce future output growth, thus undermining the benefits of any debt reduction? Are there alternatives that allow satisfactory output growth without jeopardizing creditworthiness? How can the necessary surplus of savings over investment be brought about at levels of investment high enough to sustain output growth? Should the government contribute to the internal adjustment by reducing its deficit? Macroeconomic targets for inflation and growth, and creditworthiness constraints on debt issue, impose restrictions on the extent to which deficits can be financed. Can the government cover the deficit within these targets and constraints? The absence of such consistency forebodes future policy change and so undermines the credibility of the adjustment program. The author uses empirical work on Turkey to illustrate the interactions between fiscal deficits and the macroeconomic variables upon which fiscal consistency hinges.

Risk and Inflation

This paper examines the effect of risk differences on the oft-documented negative rela? tionship between stock returns and inflation. We find risk-related patterns of coefficients on our estimates of the level and change in expected inflation and on unexpected inflation. These patterns are consistent with the hypothesis developed in Fama [2] and in Geske and Roll [7] that future real output growth simultaneously helps to determine current stock returns and various measures of inflation.