VOLUME IX
SPRING 2001

HOW INFORMATIVE ARE FINANCIAL ASSET PRICES IN SPAIN?
 
FRANCISCO ALONSO
JUAN AYUSO
JORGE MARTÍNEZ-PAGÉS

Banco de España
 
This paper analyses the informational content of a wide range of financial prices in Spain on the inflation rate, the 3-month interest rate and output, which are all variables of special interest for a central bank. We consider two approaches. First, we use a standard lineal regression model of leading indicator. Second, we estimate Probit models to forecast inflationary upturns, output slowdowns and monetary policy tightenings as reflected by interest rate upturns. According to our results, none of the financial indicators considered seems to hold a stable empirical relationship with any of the fundamentals. Nevertheless, they can be useful as "qualitative" indicators to complement the quantitative information provided by other non-financial indicators.
 
Key words: information content, probit models, leading indicators.
JEL classification: E37, E44, E52.

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