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Building a financial conditions index for the euro area and selected euro area countries: what does it tell us about the crisis?

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  • Eleni Angelopoulou

    ()
    (Bank of Greece)

  • Hiona Balfoussia

    ()
    (Bank of Greece)

  • Heather D. Gibson

    ()
    (Bank of Greece)

Abstract

In this paper we construct Financial Conditions Indices (FCIs) for the euro area, for the period 2003 to 2011, using a wide range of prices, quantities, spreads and survey data, grounded in the theoretical literature. One FCI includes monetary policy variables, while two versions of the FCI without monetary policy are also constructed. This enables us to study the impact of monetary policy on financial conditions – indeed, overall, we find evidence of monetary policy ‘leaning against the wind’. The FCIs constructed fit in well with a narrative of financial conditions since the creation of the monetary union. FCIs for individual euro area countries are also provided, with a view to comparing financial conditions in core and periphery countries. There is evidence of significant divergence both before and during the crisis, which becomes less pronounced when monetary policy variables are included in the FCI. However, the impact of monetary policy on financial conditions appears not to be entirely symmetric across the euro area.

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Bibliographic Info

Paper provided by Bank of Greece in its series Working Papers with number 147.

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Length: 44 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:bog:wpaper:147

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Keywords: fiscal policy; public debt; financial market; crisis; credit;

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