Mario Forni, Marc Hallin, Marco Lippi et Lucrezia Reichlin
This paper uses a large data set of monthly time series both real and nominal for the main countries of the euro area to evaluate the role of financial variables in forecasting aggregate inflation and industrial production. The panel contains 725 variables which we organize in five blocks: sectoral and national industrial production, sectoral and national prices, national money aggregates, financial variables and miscellaneous leading variables. We use the dynamic factor model proposed by Forni, Hallin, Lippi and Reichlin (2000) to establish leading properties of all variables in the panel with respect to inflation and industrial production. We then construct aggregates of leading variables by each block and establish the marginal role of the financial aggregate in the forecasting equations. We find that financial variables help forecast inflation but not industrial production.
Updated on: 03/19/2019 16:51