Economic policy uncertainty effects for forecasting future real economic activity
Junttila, J.-P., & Vataja, J. (2018). Economic policy uncertainty effects for forecasting future real economic activity. Economic Systems, 42(4), 569-583. https://doi.org/10.1016/j.ecosys.2018.03.002
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Economic SystemsDate
2018Copyright
© 2018 Elsevier B.V.
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.
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