The predictive content of financial variables: Evidence from the euro area

In this paper we investigate the predictive ability of financial variables for real growth through bivariate and multivariate non-parametric Granger causality tests for the euro area. Apart from assessing the within-country forecasting ability of commonly-employed financial variables, such as the term spread, the stock market returns and the real growth of money supply, we also test for cross-country influences. In this way, we reveal the countries that are more useful in predicting growth in other member countries along with the ones that are more receptive to other countries' financial developments.