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A new index of financial conditions

Author Info

Listed author(s):
  • Gary Koop

    ()

    (Department of Economics, University of Strathclyde)

  • Dimitris Korobilis

    ()

    (Department of Economics, University of Glasgow)

Abstract

We use factor augmented vector autoregressive models with time-varying coefficients to construct a financial conditions index. The time-variation in the parameters allows for the weights attached to each .financial variable in the index to evolve over time. Furthermore, we develop methods for dynamic model averaging or selection which allow the financial variables entering into the FCI to change over time. We discuss why such extensions of the existing literature are important and show them to be so in an empirical application involving a wide range of .financial variables.

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File URL: http://www.strath.ac.uk/media/1newwebsite/departmentsubject/economics/research/researchdiscussionpapers/2013/13-07FINAL.pdf
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Paper provided by University of Strathclyde Business School, Department of Economics in its series Working Papers with number 1307.

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Length: 24 pages
Date of creation: Jun 2013
Publication status: Published
Handle: RePEc:str:wpaper:1307
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Web page: http://www.strath.ac.uk/economics/
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Keywords: financial stress; dynamic model averaging; forecasting;

Other versions of this item:

Find related papers by JEL classification:
  • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
  • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
  • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
  • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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  10. Bates, Brandon J. & Plagborg-Møller, Mikkel & Stock, James H. & Watson, Mark W., 2013. "Consistent Factor Estimation in Dynamic Factor Models with Structural Instability," Scholarly Articles 28469786, Harvard University Department of Economics.
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