Forecasting US growth during the Great Recession: Is the financial volatility the missing ingredient?

The Great Recession endured by the main industrialized countries during the period 2008-2009, in the wake of the financial and banking crisis, has pointed out the major role of the financial sector on macroeconomic fluctuations. In this paper, we reconsider macrofinancial linkages by assessing the leading role of the daily volatility of two major financial variables, namely commodity and stock prices, in their ability to anticipate US GDP growth. For this purpose, an extended MIDAS model is proposedthat allows the forecasting of the quarterly growth rate using exogenous variables sampled at various higher frequencies. Empirical results show that using both daily financial volatilities and monthly industrial production is helpful at the time of predicting quarterly GDP growth over the Great Recession period.