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Quantifying the Effect of Financial Conditions in the Euro Area, Japan, United Kingdom and United States

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  • Stéphanie Guichard
  • David Haugh
  • David Turner

Abstract

This paper constructs a broad measure of financial conditions for the United States, Japan, the Euro Area and the United Kingdom, by extending monetary condition indices which are traditionally used to gauge the impact of monetary policy on the economy. In addition to changes in the exchange rate and short and long interest rates, the change in credit availability, corporate bond spreads and household wealth are taken into account to gauge the evolution of financial conditions. Since the onset of the financial crisis, financial conditions have tightened by an unprecedented degree in the four countries/regions and this is evaluated to exert a major drag on activity. Quantifier l'impact des conditions financières dans la Zone Euro, le Japon, le Royaume-Uni et les États-Unis Ce document propose une mesure des conditions financières au sens large pour les États-Unis, le Japon, la Zone Euro et le Royaume-Uni, en étendant les indices des conditions monétaires traditionnellement employés pour mesurer l’impact de la politique monétaire sur l’économie. En plus des variations du taux de change et des taux d’intérêt à court et long terme, l’évolution de la disponibilité du crédit, des primes de risques sur les obligations des sociétés et de la richesse des ménages sont prises en considération pour apprécier l’évolution des conditions financières. Depuis le début de la crise financière, le resserrement des conditions financières a attient un degré sans précédent dans les quatre pays/régions et ceci devrait peser fortement sur l’activité.

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File URL: http://dx.doi.org/10.1787/226365806132
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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Economics Department Working Papers with number 677.

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Date of creation: 09 Mar 2009
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Handle: RePEc:oec:ecoaaa:677-en

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Keywords: credit crunch; macro-financial linkages; financial conditions index; interest rate spreads; monetary conditions index; credit channel; wealth effects; effet de richesse; contraction du crédit; relations macro-financières; indice des conditions financières; écarts de taux d’intérêt; canal du crédit; indice des conditions monétaires;

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Cited by:
  1. 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.
  2. Tim Ng, 2011. "The predictive content of financial cycle measures for output fluctuations," BIS Quarterly Review, Bank for International Settlements, June.
  3. Canale, Rosaria Rita, 2011. "Default risk and fiscal sustainability in PIIGS countries," MPRA Paper 32215, University Library of Munich, Germany.
  4. Luis Ceballos S. & Mario González F., 2012. "Indicador de Condiciones Económicas," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 15(1), pages 105-117, April.
  5. Prieto, Esteban & Eickmeier, Sandra & Marcellino, Massimiliano, 2013. "Time variation in macro-financial linkages," Discussion Papers 13/2013, Deutsche Bundesbank, Research Centre.
  6. Jun-ichi Shinkai & Akira Kohsaka, 2010. "Financial Linkages and Business Cycles of Japan: An Analysis Using Financial Conditions Index," OSIPP Discussion Paper 10E008, Osaka School of International Public Policy, Osaka University.

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