Extracting growth and inflation expectations from financial market data

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Title: Extracting growth and inflation expectations from financial market data
Author: Kajanoja, Lauri
Organization: Suomen Pankki
Series: Suomen Pankin keskustelualoitteita
Series number: 2/2004
Year of publication: 2004
Publication date: 20.1.2004
Pages: 25 s.
Keywords: inflaatio; odotukset; futuurit; osakkeet; indeksit; korot; hinnat; euroalue; USA; rahoitusmarkkinat; talouskasvu; menetelmät
JEL: E31; E44; E66
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. Key words: inflation expectations, growth expectations, equity index futures JEL classification numbers: E31, E44, E66
Rights: https://helda.helsinki.fi/bof/copyright


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