Credit, the Stock Market and Oil: Forecasting Us GDP
52 Pages Posted: 11 Sep 2001
Date Written: August 2001
We derive a comprehensive one-year ahead forecasting model of US per capita GDP for 1955-2000, examining collectively variables usually considered singly, e.g. interest rates, credit conditions, the stock market, oil prices and the yield gap, of which all, except the last, are found to matter. The credit conditions index is measured in the Federal Reserve's Survey of Senior Loan Officers and its importance is consistent with a 'financial accelerator' view. The balance of payments, exchange rate and fiscal policy also play a role. We address the Lucas critique, investigating consequences of monetary policy regime shifts in 1980, and fiscal policy regime shifts at the end of the 1980s. The model forecasts the most severe growth reversal in 2001 since 1974.
Keywords: Lucas critique, macroeconomic forecasts, monetary policy transmission, oil prices, the credit channel, the financial accelerator, US recession
JEL Classification: E32, E37, E63
Suggested Citation: Suggested Citation