6533b7d8fe1ef96bd12698c7

RESEARCH PRODUCT

Economic policy uncertainty effects for forecasting future real economic activity

Juha-pekka JunttilaJuuso Vataja

subject

rahoitusmarkkinatEconomics and EconometricsaikasarjatEconomic policyEconomic indicator0502 economics and businessEconomicsBusiness cyclefinancial markets050207 economicsuncertaintytalousindikaattoritta511050208 financeleading indicators05 social sciencesFinancial marketmacroeconomic forecastingtaloudelliset ennusteetepävarmuusMacroeconomic forecastingStock marketYield curvetime seriesReal economy

description

Recently introduced measures for Economic Policy Uncertainty (EPU) included in the data from 1997 - 2016 have a role in forecasting out-of-sample values for the future real economic activity for both the euro area and the UK economies. The inclusion of EPU measures, either for the US, the UK or for overall European economies, improves the forecasting ability of models based on standard financial market information, especially for the period before the 2008 global crisis. However, during and after the crisis period, the slope of the yield curve and excess stock market returns improves the out-of-sample forecast performance the most compared to an AR-benchmark model. Hence, the EPU information is important in times of normal business cycles, but it might contain similar information components to the financial market return variables, during turbulent crisis periods in the financial markets and in the real economy. peerReviewed

yearjournalcountryeditionlanguage
2018-12-01Economic Systems
https://doi.org/10.1016/j.ecosys.2018.03.002