The notion that financial asset returns are predictors of future economic activity is widespread, but detailed analyses provide little support for financial markets’ ability to reveal future economic activity. Even though the evidence on various indicators used by different researchers is...

2008 Annual Economic Outlook Conference, Middle Tennessee State University, Murfreesboro, Tenn., Sept. 26, 2008

Under efficient consumption risk sharing, as assumed in standard international business cycle models, a country's aggregate consumption rises relative to foreign consumption, when the country's real exchange rate depreciates. Yet, empirically, relative consumption and the real exchange rate are...

2008 Annual Economic Outlook Conference, Middle Tennessee State University, Murfreesboro, Tenn., Sept. 26, 2008

This paper examines the usefulness of asset prices in predicting recessions in the G-7 countries. It finds that asset price drops are significantly associated with the beginning of a recession in these countries. In particular, the marginal effect of an equity/house price drop on the likelihood...

About two weeks prior to each FOMC meeting, the Federal Reserve releases a description of economic activity in a document called the Beige Book. The authors examine whether the descriptive content of the Beige Book affects asset prices. The results indicate that more positive Beige Book reports...