Sunday, September 18, 2011

Revealing equity prices (amv)

Further evidence by Bluedorn et al. (© supporting the view that central banks should target market forecasts. 

There are concerns that the recent sharp drop in equity prices in the advanced economies may signal a rise in the risk of a double-dip recession. This column examines the performance of equity prices as predictors of new recessions in the G7 economies. The findings suggest that equity prices are useful predictors of recessions in most of these countries. Recent drops in equity prices suggest that the probability of a double-dip recession in France, the UK, and the US has increased substantially.