GDP Growth, Unemployment, and Indexes of Financial Stress

C. Barry Pfitzner, Steven D. Lang
(Department of Economics/Business, Randolph-Macon College, Ashland, VA, USA)

Abstract: This project employs a baseline trivariate vector auto-regression (VAR) model to generate forecasts of real GDP growth and the unemployment rate. In addition to the two aforementioned variables, this project also includes an index of financial stress. Estimations reported in this project indicate that measures of financial stress can be useful in forecasting important macroeconomic variables. Out-of-sample forecasts are generated for a horizon of six years.

Key words: financial stress; vector auto-regressions; impulse response functions

JEL codes: E1, E3