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Extracting growth and inflation expectations from financial market data

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  • Kajanoja, Lauri

Abstract

This study presents a framework for extracting long-run GDP growth and inflation expectations from financial market data on a real-time basis.The framework uses information from both stock and bond markets.It builds on a dividend discount model of stock valuation and on a linearized consumption Euler equation. Furthermore, expected long-run dividend growth for a broad equity index is assumed to be related to expected long-run GDP growth. Short-run and long-run dividend growth expectations are allowed to differ.The former are measured using equity index futures.We extract growth and inflation expectations for the euro area and for the United States.

Suggested Citation

  • Kajanoja, Lauri, 2004. "Extracting growth and inflation expectations from financial market data," Bank of Finland Research Discussion Papers 2/2004, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2004_002
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    File URL: https://www.econstor.eu/bitstream/10419/211970/1/bof-rdp2004-002.pdf
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    Cited by:

    1. Männistö, Hanna-Leena, 2005. "Forecasting with a forward-looking DGE model: combining long-run views of financial markes with macro forecasting," Bank of Finland Research Discussion Papers 21/2005, Bank of Finland.

    More about this item

    Keywords

    inflation expectations; growth expectations; equity index futures;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions

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