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Modelling the impact of aggregate financial shocks external to the Chinese economy

  • Qin, Duo

    ()

    (BOFIT)

  • He, Xinhua

    (BOFIT)

Ways 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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File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/2012/dp2510.pdf
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Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 25/2012.

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Length: 47 pages
Date of creation: 18 Oct 2012
Date of revision:
Handle: RePEc:hhs:bofitp:2012_025
Contact details of provider: Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
Web page: http://www.suomenpankki.fi/bofit_en/
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