Preliminary

Empirical and theoretical research is showing increasingly that financial developments substantially influence macroeconomic fluctuations. VAR estimation with macroeconomic variables and a range of types of financial variables for the US suggests that the different types of financial variables contain independent information for predicting output, and that shocks to these variables can explain a substantial proportion of the forecast error variance for output. The use of data from the global financial crisis period markedly strengthens these findings. The evidence suggests that stabilisation policy reform to manage the financial aspects of macroeconomic fluctuations should allow for several independent sources of financial shocks. However, the sensitivity of the estimates to the sample suggests proceeding with caution about linear models and simple rules to govern policy conduct.