Accounting earnings and gross domestic product

https://doi.org/10.1016/j.jacceco.2013.10.001Get rights and content
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Highlights

  • Our study sheds light on the informativeness of aggregate accounting earnings growth for forecasting Gross Domestic Product (GDP) growth.

  • We document that aggregate accounting earnings growth is an incrementally significant leading indicator of nominal GDP growth.

  • Professional macro forecasters do not fully incorporate the predictive content embedded in aggregate accounting earnings growth.

  • Future forecast errors of nominal GDP growth are predictable based on aggregate accounting earnings growth.

Abstract

We document that aggregate accounting earnings growth is an incrementally significant leading indicator of growth in nominal Gross Domestic Product (GDP). Professional macro forecasters, however, do not fully incorporate the predictive content embedded in publicly available accounting earnings data. As a result, future nominal GDP growth forecast errors are predictable based on accounting earnings data that are available to professional macro forecasters in real time.

JEL classification

E00
E01
M41

Keywords

Accounting earnings
Corporate profits
Gross Domestic Product (GDP)

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