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It takes a panel to predict the future: What the stock market says about future economic growth in Canada

Author

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  • Greg Adams
  • Jean-Sébastien Fontaine

Abstract

Throughout 2022, the Canadian economy faced persistently high inflation. The Bank of Canada responded forcefully by increasing the target rate by 425 basis points between March 2022 and January 2023. These increases led investors to expect slower economic growth in Canada, and these expectations are evident in the drop in earnings forecasts for companies whose stocks are traded on the TSX. This provided policy-makers with an early sign that higher interest rates would be effective and slow economic growth because these forecasts fell more for companies that are more sensitive to interest rates.

Suggested Citation

  • Greg Adams & Jean-Sébastien Fontaine, 2023. "It takes a panel to predict the future: What the stock market says about future economic growth in Canada," Staff Analytical Notes 2023-9, Bank of Canada.
    • Handle: RePEc:bca:bocsan:23-9
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    File URL: https://www.bankofcanada.ca/2023/07/staff-analytical-note-2023-9/
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    More about this item

    Keywords

    Asset pricing; Financial markets; Monetary policy transmission;
    All these keywords.

    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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