Forecasting EU Economic Activity Using Financial Condition Indexes

Abstract

This paper investigates the performance of Financial Condition Indexes (FCIs) in forecasting four key macroeconomic variables of EU economies. A wide range of carefully selected financial indicators include Rates and Spreads, Stock Market Indicators and Macroeconomic Quantities. The results provide evidence that FCIs are particularly useful in forecasting GDP growth, Consumption growth, Industrial Production growth and the Unemployment Rate.