Using a large quarterly macroeconomic dataset for the period 1960-2017, we document the ability of specific financial ratios from the housing market and firms' aggregate balance sheets to predict GDP over medium-term horizons in the United States. A cyclically adjusted house price-to-rent ratio and the liabilities-to-income ratio of the non-financial non-corporate business sector provide the best in-sample and out-ofsample predictions of GDP growth over horizons of one to five years, based on a wide variety of rankings. Small forecasting models that include these indicators outperform popular high-dimensional models and forecast combinations. The predictive power of the two ratios appears strong during both recessions and expansions, stable over time, and consistent with well-established macro-finance theory.

Moramarco, G. (2024). Financial-cycle ratios and medium-term predictions of GDP: Evidence from the United States. INTERNATIONAL JOURNAL OF FORECASTING, 40(2), 777-795 [10.1016/j.ijforecast.2023.05.007].

Financial-cycle ratios and medium-term predictions of GDP: Evidence from the United States

Moramarco, Graziano
2024

Abstract

Using a large quarterly macroeconomic dataset for the period 1960-2017, we document the ability of specific financial ratios from the housing market and firms' aggregate balance sheets to predict GDP over medium-term horizons in the United States. A cyclically adjusted house price-to-rent ratio and the liabilities-to-income ratio of the non-financial non-corporate business sector provide the best in-sample and out-ofsample predictions of GDP growth over horizons of one to five years, based on a wide variety of rankings. Small forecasting models that include these indicators outperform popular high-dimensional models and forecast combinations. The predictive power of the two ratios appears strong during both recessions and expansions, stable over time, and consistent with well-established macro-finance theory.
2024
Moramarco, G. (2024). Financial-cycle ratios and medium-term predictions of GDP: Evidence from the United States. INTERNATIONAL JOURNAL OF FORECASTING, 40(2), 777-795 [10.1016/j.ijforecast.2023.05.007].
Moramarco, Graziano
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/934896
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