Do financial variables help predict the state of the business cycle in small open 435-453 Do financial variables help predict the state of the business cycle in small open economies? Evidence from Switzerland

We analyze the forecasting ability of financial variables to predict the state of the Swiss business cycle up to eight quarters ahead. Overall, our results suggest that financial variables convey leading information for the prediction of business cycles, even when applied to a small open economy. Ho...

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Veröffentlicht in:Financial markets and portfolio management 2011-12, Vol.25 (4), p.435
Hauptverfasser: Meichle, Mario, Ranaldo, Angelo, Zanetti, Attilio
Format: Artikel
Sprache:eng
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Zusammenfassung:We analyze the forecasting ability of financial variables to predict the state of the Swiss business cycle up to eight quarters ahead. Overall, our results suggest that financial variables convey leading information for the prediction of business cycles, even when applied to a small open economy. However, we clearly find that model specifications need to be extended to include variables accounting for external shocks, such as exchange rates or international commodity prices. It also appears that the forecasting contribution of individual variables changes over time. Specifically, in the last two decades, stock market liquidity has replaced the term spread as the best single predictor.[PUBLICATION ABSTRACT]
ISSN:1934-4554
2373-8529
DOI:10.1007/s11408-011-0173-y