DP2906 Credit, the Stock Market and Oil: Forecasting US GDP

Author(s): John Muellbauer, Luca Nunziata
Publication Date: August 2001
Keyword(s): Lucas critique, macroeconomic forecasts, monetary policy transmission, oil prices, the credit channel, the financial accelerator, the US recession
JEL(s): E32, E37, E63
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2906

We derive a comprehensive one-year ahead forecasting model of US per capita GDP for 1955-2000, collectively examining variables usually considered singly, e.g. interest rates, credit conditions, the stock market, oil prices and the yield gap, of which all, except the last, are found to matter. The credit conditions index is measured in the Federal Reserve?s Survey of Senior Loan Officers and its importance is consistent with a ?financial accelerator? view. The balance of payments, exchange rate and fiscal policy also play a role. We address the Lucas critique, investigating consequences of monetary policy regime shifts in 1980, and fiscal policy regime shifts at the end of the 1980?s. The model forecasts in 2001 the most severe growth reversal since 1974.