Estimating a financial uncertainty index for Saudi Arabia

Hedi Ben Haddad, Sohale Altamimi, Imed Mezghani and Imed Medhioub

International Journal of Emerging Markets, 2022, vol. 19, issue 2, 519-539

Abstract: Purpose - This study seeks to build a financial uncertainty index for Saudi Arabia. This index serves as a leading indicator of Saudi economic activity and helps to describe economic fluctuations and forecast economic trends. Design/methodology/approach - This study adopts an extension of the Juradoet al.(2015) procedure by combining financial uncertainty factors with their net spillover effects on GDP and inflation to construct an aggregate financial uncertainty index. The authors consider 13 monthly financial variables for Saudi Arabia from January 2010 to June 2021. Findings - The empirical results show that the constructed financial uncertainty estimates are good leading indicators of economic activity. The robustness analysis suggests that the authors’ proposed financial uncertainty estimators outperform the alternative estimates used by other existing approaches to estimate the financial conditions index. Originality/value - To the best of the authors’ knowledge, this is the first attempt at constructing a financial uncertainty index for Saudi Arabia. This study extends the empirical literature, from which the authors propose a novel conceptual framework for building a financial uncertainty index by combining the approach of Juradoet al.(2015) and the time-varying connectedness network approach proposed by Antonakakiset al.(2020)

Keywords: Financial conditions index; Financial uncertainty; TVP-FAVAR model; Connectedness; Out-of-sample forecasting; MIDAS model (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-02-2022-0248

DOI: 10.1108/IJOEM-02-2022-0248

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