E47 - Money and Interest Rates: Forecasting and Simulation: Models and ApplicationsReturn

This paper states its objective to be specifying the relationship between select banking sector indicators and the eurozone's economic growth. The indicators that were selected are analyzed using the Engle-Granger cointegration test, which is meant to confirm the long-term influence of the indicators of bank loans provided to the private non-financial sector and the M3 aggregate on the growth of GDP. Data from the years 1999-2016 are included in the analysis. On the basis of the tests that were conducted, it was determined that there is no cointegration relationship between any of the time series at a level of significance of 0.05; this means that a long-term relationship was not found between the amount of bank loans provided to the private non-financial sector and GDP or between the M3 monetary aggregate and GDP. The conclusions resulting from the analyses that were conducted are supported by graphic depictions of the data, which clarify the rejection of the hypothesis.

The yield curve - specifically the spread between long term and short term interest rates is a valuable forecasting tool. It is simple to use and significantly outperform other financial and macroeconomic indicators in predicting recessions two to six quarters ahead. The steepness of the yield curve should be an excellent indicator of a possible future economic activity. A rise in the short rate tends to flatten the yield curve as well as to slow down real growth the near term. This paper aims to analyze the dependence between slope of the yield curve and an economic activity of selected EU countries and the USA between the years 2000 and 2014. The slope of the yield curve can be measured as the yield spread between sovereign 10-year bonds and sovereign 3-month bonds. The natural and probably the most popular measure of economic growth is GDP growth, taken quarterly. The results showed that the best predictive lags are lag of four and five quarters. The results presented also confirm that 10-year and 3-month yield spread has significant predictive power to real GDP growth after financial crisis. These findings can be beneficial for investors and provide further evidence of the potential usefulness of the yield curve spreads as indicators of the future economic activity.