Modelling the impact of aggregate financial shocks external to the Chinese economy
AbstractWays of extracting financial condition indices (FCI) are explored and alternative FCIs external to the Chinese economy are constructed to model their predictive content. The exploration aims at highlighting the rich and varied dynamic features of financial variables underlying FCIs and the importance of synchronising dynamic information between FCIs and the real-sector variables to be forecasted. The modelling experiment aims at improving the forecasting model upon which the FCIs are assessed. Four variables are chosen as the likely macro channel of the FCIs affecting the Chinese economy. It is found that the FCI-led models enjoy forecasting advantages over a benchmark model in three out of the four variables, although the benchmark model is not dominated by the FCI-led models when judged by in-sample encompassing tests. The evidence indicates the increasing exposure of the Chinese economy to the global financial conditions.
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Bibliographic InfoPaper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 25/2012.
Length: 47 pages
Date of creation: 18 Oct 2012
Date of revision:
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More information through EDIRC
financial index; dynamic factor; VAR; error correction; encompassing;
Find related papers by JEL classification:
- C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
- E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-27 (All new papers)
- NEP-FOR-2012-10-27 (Forecasting)
- NEP-TRA-2012-10-27 (Transition Economics)
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