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A Quantitative Assessment of Financial Conditions in Asia

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Author Info

  • Carolina Osorio
  • D. Filiz Unsal
  • Runchana Pongsaparn

Abstract

We propose a new Financial Condition Index (FCI) for Asian economies based on two different methodologies: a VAR model and a Dynamic Factor Model. The paper shows that this index has predictive power in forecasting GDP growth and may be thus used as a leading indicator. Based on the FCI, financial conditions in Asia tightened substantially earlier in the global crisis, reflecting losses in the stock markets and tighter credit conditions. In early 2010, financial conditions in Asia recovered rapidly and reached precrisis levels, thanks to accommodative monetary policies and a rapid rebound in regional equity markets.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/170.

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Length: 21
Date of creation: 01 Jul 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/170

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Related research

Keywords: Asia; Economic growth; Economic conditions; Financial sector; Forecasting models; Global Financial Crisis 2008-2009; Gross domestic product; exchange rate; stock market; effective exchange rate; nominal effective exchange rate; bond; stock price index; equity markets; stock price; government bond; bond yield; government bond yield; stock prices; exchange rates; deposit rate; stock market indices; treasury bond; rediscount; nominal effective exchange rate index; discount rate; foreign exchange rate; real exchange rate; financial markets; bonds; real exchange rates; treasury bond yields; benchmark government bond; international financial statistics; foreign exchange; rediscount rate; exchange rate depreciation; equity market; stock markets; bond yields; asset markets; exchange rate index;

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References

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  1. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
  2. Forni M. & Hallin M., 2003. "The Generalized Dynamic Factor Model: One-Sided Estimation and Forecasting," Computing in Economics and Finance 2003 143, Society for Computational Economics.
  3. Jan Hatzius & Peter Hooper & Frederic S. Mishkin & Kermit L. Schoenholtz & Mark W. Watson, 2010. "Financial Conditions Indexes: A Fresh Look after the Financial Crisis," NBER Working Papers 16150, National Bureau of Economic Research, Inc.
  4. James H. Stock & Mark W. Watson, 1998. "Diffusion Indexes," NBER Working Papers 6702, National Bureau of Economic Research, Inc.
  5. Stock, James H. & Watson, Mark W., 1999. "Business cycle fluctuations in us macroeconomic time series," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 1, pages 3-64 Elsevier.
  6. Forni, Mario & Lippi, Marco, 2001. "The Generalized Dynamic Factor Model: Representation Theory," Econometric Theory, Cambridge University Press, vol. 17(06), pages 1113-1141, December.
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Citations

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Cited by:
  1. A. Hakan Kara & Pinar Ozlu & Deren Unalmis, 2012. "Financial Conditions Indices for the Turkish Economy," CBT Research Notes in Economics 1231, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  2. Qin, Duo & He, Xinhua, 2012. "Modelling the impact of aggregate financial shocks external to the Chinese economy," BOFIT Discussion Papers 25/2012, Bank of Finland, Institute for Economies in Transition.
  3. Nombulelo Gumata & Eliphas Ndou & Nir Klein, 2012. "A Financial Conditions Index for South Africa," IMF Working Papers 12/196, International Monetary Fund.
  4. Magdalena Petrovska & Elena Mucheva Mihajlovska, 2013. "Measures of Financial Stability in Macedonia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 2(3), pages 85-110.

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