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Financial Conditions Index as a predictor in low-inflation environment

Author

Listed:
  • Oreste Napolitano

    () (University of Naples Parthenope)

  • Salvatore Capasso

    () (University of Naples Parthenope)

  • Ana Laura Viveros

    () (Universidad Nacional Autónoma de México)

Abstract

The nature of the ?nancial crisis in 2008 imposed new challenges for macroe-conomic theory and policy-makers. In this context, a ?nancial conditions index(FCI) could be a useful tool to identify the state of ?nancial conditions in acountry. We construct a FCI for Mexico to analyse the role of prices of ?nancialassets in the formulation of monetary policy under the in?ation-targeting regime.We estimate FCIs by two di?erent methodologies using monthly data from 1990to 2017. The variables are considered according to the mechanismof transmission of monetary policy and incorporating other important ?nancialvariables, those characterise developing countries. Our results show that FCI isa good predictor in a low/non-in?ation environment.

Suggested Citation

  • Oreste Napolitano & Salvatore Capasso & Ana Laura Viveros, 2020. "Financial Conditions Index as a predictor in low-inflation environment," Proceedings of International Academic Conferences 10012456, International Institute of Social and Economic Sciences.
  • Handle: RePEc:sek:iacpro:10012456
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    File URL: https://iises.net/proceedings/iises-international-academic-conference-dubai/table-of-content/detail?cid=100&iid=012&rid=12457
    File Function: First version, 2020
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    More about this item

    Keywords

    Financial Conditions; Monetary policy; Vector autoregressive models;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

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