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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?

Author

Listed:
  • 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.

Suggested Citation

  • Eleni Angelopoulou & Hiona Balfoussia & Heather D. Gibson, 2012. "Building a financial conditions index for the euro area and selected euro area countries: what does it tell us about the crisis?," Working Papers 147, Bank of Greece.
  • Handle: RePEc:bog:wpaper:147
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    Cited by:

    1. Matkovskyy, Roman & Bouraoui, Taoufik & Hammami, Helmi, 2016. "Analysing the financial strength of Tunisia: An approach to estimate an index of financial safety," Research in International Business and Finance, Elsevier, pages 485-493.
    2. repec:hal:journl:halshs-01110688 is not listed on IDEAS
    3. Hakan Kara & Pinar Ozlu & Deren Unalmis, 2015. "Turkiye icin Finansal Kosullar Endeksi," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 15(3), pages 41-73.
    4. Umit Bulut, 2016. "Do Financial Conditions have a Predictive Power on Inflation in Turkey?," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 621-628.
    5. Rémy Charleroy & Michael A. Stemmer, 2014. "An Emerging Market Financial Conditions Index: A VAR Approach," Documents de travail du Centre d'Economie de la Sorbonne 14068, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
    6. Kappler, Marcus & Schleer, Frauke, 2017. "A financially stressed euro area," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 11, pages 1-37.
    7. Sun, Lixin & Huang, Yuqin, 2016. "Measuring the instability of China's financial system: Indices construction and an early warning system," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 10, pages 1-41.
    8. Hanousek, Jan & Kočenda, Evžen & Shamshur, Anastasiya, 2015. "Corporate efficiency in Europe," Journal of Corporate Finance, Elsevier, pages 24-40.
    9. MacDonald, Ronald & Sogiakas, Vasilios & Tsopanakis, Andreas, 2015. "An investigation of systemic stress and interdependencies within the Eurozone and Euro Area countries," Economic Modelling, Elsevier, vol. 48(C), pages 52-69.

    More about this item

    Keywords

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

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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