A New Index of Financial Conditions

Gary Koop and Dimitris Korobilis

No 2013-48, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

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.

Keywords: financial stress; dynamic model averaging; forecasting (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-ifn
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Citations: View citations in EconPapers (24)

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Related works:
Journal Article: A new index of financial conditions (2014)
Working Paper: A New Index of Financial Conditions (2013)
Working Paper: A new index of financial conditions (2013)
Working Paper: A new index of financial conditions
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