Forecasting Growth During the Great Recession: Is Financial Volatility the Missing Ingredient?

11 Pages Posted: 10 Nov 2012 Last revised: 13 May 2014

See all articles by Laurent Ferrara

Laurent Ferrara

SKEMA Business School; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA); Université Paris Ouest - Nanterre, La Défense - EconomiX

Clément Marsilli

Banque de France; University of Burgundy Franche-Comté

Juan-Pablo Ortega

Universität Sankt Gallen; Centre National de la Recherche Scientifique (CNRS)

Date Written: July 19, 2013

Abstract

The Great Recession endured by the main industrialized countries during the period 2008-2009, in the wake of the financial and banking crisis, has pointed out the major role of the financial sector on macroeconomic fluctuations. In this respect, many researchers have started to reconsider the linkages between financial and macroeconomic areas. In this paper, we evaluate the leading role of the daily volatility of two major financial variables, namely commodity and stock prices, in their ability to anticipate the output growth. For this purpose, we propose an extended MIDAS model that allows the forecasting of the quarterly output growth rate using exogenous variables sampled at various higher frequencies. Empirical results on three industrialized countries (US, France, and UK) show that mixing daily financial volatilities and monthly industrial production is useful at the time of predicting gross domestic product growth over the Great Recession period.

Keywords: Great Recession, Forecasting, Financial variables, MIDAS approach, Volatility

JEL Classification: C3, C53, E27, E32

Suggested Citation

Ferrara, Laurent and Marsilli, Clément and Ortega, Juan-Pablo, Forecasting Growth During the Great Recession: Is Financial Volatility the Missing Ingredient? (July 19, 2013). Economic Modelling, Vol. 36, 44-50, 2014, Banque de France Working Paper No. 454, Available at SSRN: https://ssrn.com/abstract=2173152 or http://dx.doi.org/10.2139/ssrn.2173152

Laurent Ferrara

SKEMA Business School ( email )

Paris la Défense, 92916
France

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia

Université Paris Ouest - Nanterre, La Défense - EconomiX ( email )

200 Avenue de la République
92000

Clément Marsilli

Banque de France ( email )

Paris
France

University of Burgundy Franche-Comté ( email )

1 rue Claude Goudimel
25030 Besancon cedex, DOUBS 25000
France

Juan-Pablo Ortega (Contact Author)

Universität Sankt Gallen ( email )

Bodanstrasse 6
St. Gallen, St. Gallen CH-9000
Switzerland

HOME PAGE: http://juan-pablo-ortega.com

Centre National de la Recherche Scientifique (CNRS) ( email )

16 route de Gray
Besançon, 25030
France

HOME PAGE: http://juan-pablo-ortega.com

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