Financial variables and real economic activity

Abstract

The purpose in this paper is to non-parametrically estimate the temporal correlations between financial variables and output growth in two different groups of countries and then to compare this non-parametric method with the VAR model. These two groups of countries are the emerging and the developed counties, respectively. Financial variables examined are those that are very often associated with future output growth (industrial production), such as stock prices, interest rates, interest rate spreads, and monetary aggregates. The monthly data on the financial we use are available and obtained from DataStream.