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What does a financial system say about future economic growth?

Grabowski, Szymon (2008): What does a financial system say about future economic growth?

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Abstract

In many research studies it is argued that it is possible to extract useful information about future economic growth from the performance of financial markets. However, this study goes further and shows that it is not only possible to use expectations derived from financial markets to forecast future economic growth, but that data about the financial system can be used for this purpose as well. The research is conducted for the Polish emerging economy on the basis of monthly data. The results suggest that, based purely on the data from the financial system, it is possible to construct reasonable measures that can, even for an emerging economy, effectively forecast future real economic activity. The outcomes are proved by two various econometric methods, namely, by a time series analysis and by a probit model. All presented models are tested in-sample and out-of-sample.

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