Forecasting output growth of advanced economies over eight centuries : the role of gold market volatility as a proxy of global uncertainty

Abstract

In this paper, we develop a proxy for global uncertainty based on the volatility of gold market over the annual periods from 1311 to 2019, and then use this proxy metric to forecast historical growth-rates for eight advanced economies, namely, France, Germany, Holland, Italy, Japan, Spain, the United Kingdom (UK), and the United States (US). We find that for the within-sample period, uncertainty negatively impacts output growth, but more importantly, over the out-of-sample period, gold market volatility produces statistically significant forecasting gains. Our findings are also robust to an alternative measure of uncertainty based on the volatility of the changes in long-term sovereign real-rates over the period 1315–2019. These historical results have important implications for investors and policymakers in the current context in which high frequency gold-price data are available.