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The Estimation of Financial Conditions Indices for the Major OECD Countries

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  • E. Philip Davis

    (Brunel University)

  • Simon Kirby

    (National Institute of Economic and Social Research)

  • James Warren

    (National Institute of Economic and Social Research)

Abstract

Financial conditions indices (FCIs) have been developed to summarise financial conditions and also supplement more traditional macroeconomic forecasting. They capture market expectations but also quantitative and survey information. This paper seeks to provide up to date financial conditions indices for six countries, France, Germany, Italy, Japan, the United Kingdom and the United States, as well as the euro area, updating earlier results by the OECD. The addition of the period of the financial crisis period has made radical changes to the original results of the FCI estimation. Country-specific estimates provide a number of wrong signs and insignificant coefficients. We find in general that the panel (and NiGEM) based FCIs are more satisfactory. Furthermore, a promising avenue for further research is the dynamic factor/principal components approach. Estimation des indices des conditions financières pour les grands pays de l'OCDE Les indices des conditions financières (ICF) ont été élaborés afin de récapituler les conditions financières et compléter les prévisions macroéconomiques plus classiques. Ils incluent les attentes des marchés mais aussi le traitement des informations quantitatives et les données d’enquêtes. Ce document vise à fournir les ICF les plus récents de six pays : Allemagne, États-Unis, France, Italie, Japon et Royaume-Uni, ainsi que la zone euro, et à actualiser les indices antérieurs établis par l'OCDE. La prise en compte de la période de la crise financière a radicalement modifié les estimations initiales de l’ICF. Les estimations nationales livrent un certain nombre de faux signaux et de coefficients non significatifs. D’une manière générale, nous pensons que les ICF estimés en panel (et à partir du modèle économétrique NiGEM) donnent des résultats plus satisfaisants. En plus, l’analyse des facteurs dynamiques /analyse des composantes principales représentent une approche prometteuse à explorer pour la suite des recherches.

Suggested Citation

  • E. Philip Davis & Simon Kirby & James Warren, 2016. "The Estimation of Financial Conditions Indices for the Major OECD Countries," OECD Economics Department Working Papers 1335, OECD Publishing.
    • Handle: RePEc:oec:ecoaaa:1335-en
    DOI: 10.1787/5jlnb5b1zw9x-en
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    Cited by:

    1. Mr. Nicolas Arregui & Mr. Selim A Elekdag & Mr. Gaston Gelos & Romain Lafarguette & Dulani Seneviratne, 2018. "Can Countries Manage Their Financial Conditions Amid Globalization?," IMF Working Papers 2018/015, International Monetary Fund.
    2. Richard K. Crump & Stefano Eusepi & Domenico Giannone & Eric Qian & Argia M. Sbordone, 2021. "A Large Bayesian VAR of the United States Economy," Staff Reports 976, Federal Reserve Bank of New York.
    3. Ernest Gnan & Maria Teresa Valderrama & Walter Waschiczek, 2019. "Financing conditions in Austria since the introduction of the euro," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1-Q2/19, pages 57-70.
    4. Simone Auer, 2017. "A Financial Conditions Index for the CEE economies," Temi di discussione (Economic working papers) 1145, Bank of Italy, Economic Research and International Relations Area.

    More about this item

    Keywords

    financial conditions index; macro-financial linkages; panel estimates;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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