A new index of financial conditions

Gary Koop and Dimitris Korobilis

Working Papers from Business School - Economics, University of Glasgow

Abstract: We use factor augmented vector autoregressive models with time-varying coe¢ cients to construct a nancial conditions index. The time-variation in the parameters allows for the weights attached to each nancial variable in the index to evolve over time. Furthermore, we develop methods for dynamic model averaging or selection which allow the nancial 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 nancial variables.

Keywords: financial stress; dynamic model averaging; forecasting (search for similar items in EconPapers)
JEL-codes: C11 C32 C52 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm
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Citations: View citations in EconPapers (13)

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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 (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:gla:glaewp:2013_06

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