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    Predictive financial models of the euro area: A new evaluation test


    Panopoulou, Ekaterini (2007) Predictive financial models of the euro area: A new evaluation test. International Journal of Forecasting, 23 (4). pp. 695-705. ISSN 0169-2070

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    Abstract

    This paper investigates the predictive ability of financial variables for euro area growth. Our forecasts are built from univariate autoregressive and single equation models. Euro area aggregate forecasts are constructed both by employing aggregate variables and by aggregating country-specific forecasts. The forecast evaluation is based on a recently developed test for equal predictive ability between nested models. Employing a monthly dataset from the period between January 1988 and May 2005 and setting the out-of-sample period to be from 2001 onwards, we find that the single most powerful predictor on a country basis is the stock market returns, followed by money supply growth. However, for the euro area aggregate, the set of most powerful predictors includes interest rate variables as well. The forecasts from pooling individual country models outperform those from the aggregate itself for short run forecasts, while for longer horizons this pattern is reversed. Additional benefits are obtained when combining information from a range of variables or combining model forecasts.
    Item Type: Article
    Keywords: Forecasting accuracy; Financial variables; Output growth; Aggregation;
    Academic Unit: Faculty of Social Sciences > Economics, Finance and Accounting
    Item ID: 20621
    Identification Number: 10.1016/j.ijforecast.2007.04.001
    Depositing User: IR Editor
    Date Deposited: 29 Sep 2025 11:21
    Journal or Publication Title: International Journal of Forecasting
    Publisher: Elsevier
    Refereed: Yes
    Related URLs:
    URI: https://mural.maynoothuniversity.ie/id/eprint/20621
    Use Licence: This item is available under a Creative Commons Attribution Non Commercial Share Alike Licence (CC BY-NC-SA). Details of this licence are available here

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