Do Financial Variables Help Predict Macroeconomic Environment? The Case Of The Czech Republic

In this paper, the authors examine the interactions of financial variables and the macroeconomy within the block-restriction vector autoregression model and evaluate to what extent the financial variables improve the forecasts of GDP growth and inflation. For this reason, various financial variables are examined, including those unexplored in previous literature, such as the share of liquid assets in the banking industry and the loan loss provision rate. Their results suggest that financial variables have a systematic and statistically significant effect on macroeconomic fluctuations.