Question
It has been argued that the stock market predicts recessions. Using quarterly data since 1971, plot the real value of the stock market index (the
It has been argued that the stock market predicts recessions. Using quarterly data since 1971, plot the real value of the stock market index (the Wilshire 500 index in the last month of the quarter divided by the GDP deflator). [Note that to convert daily FRED data into quarterly data, (1) go to the FRED page for Wilshire500 https://fred.stlouisfed.org/series/WILL5000PRFC; (2) click on Edit Graph on the right; (3) a dialogue box appears and you can select frequency (quarterly) and then can choose "aggregation method" (end of period); for the ratio of two series (1) go to customize data; (2) add GDP deflator as series b; (3) type in formula a/b and apply] Do you find the stock market to be a good economic forecaster?
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