A Quantitative Assessment of Financial Conditions in Asia

Carolina Osorio-Buitron, Filiz Unsal and Runchana Pongsaparn

No 2011/170, IMF Working Papers from International Monetary Fund

Abstract: We propose a new Financial Condition Index (FCI) for Asian economies based on two different methodologies: a VAR model and a Dynamic Factor Model. The paper shows that this index has predictive power in forecasting GDP growth and may be thus used as a leading indicator. Based on the FCI, financial conditions in Asia tightened substantially earlier in the global crisis, reflecting losses in the stock markets and tighter credit conditions. In early 2010, financial conditions in Asia recovered rapidly and reached precrisis levels, thanks to accommodative monetary policies and a rapid rebound in regional equity markets.

Keywords: WP; exchange rate; monetary policy; Financial conditions index; VAR; Dynamic Factor Analysis; FCI index; GDP growth; FCI coefficient; FCI indices; FCI ease; Vector autoregression; Stock markets; Central bank policy rate; Exchange rates; Asia and Pacific; Global (search for similar items in EconPapers)
Pages: 21
Date: 2011-07-01
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Citations: View citations in EconPapers (34)

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