EconPapers    
Economics at your fingertips  
 

Incorporating Macro-Financial Linkages into Forecasts Using Financial Conditions Indices: The Case of France

Piyabha Kongsamut, Christian Mumssen, Anne Paret and Thierry Tressel ()

No 17/269, IMF Working Papers from International Monetary Fund

Abstract: How can information on financial conditions be used to better understand macroeconomic developments and improve macroeconomic projections? We investigate this question for France by constructing country-specific financial conditions indices (FCIs) that are tailored to movements in GDP, investment, private consumption and exports respectively. We rely on a VAR approach to estimate the weights of the financial components of each FCI, including equity market returns (which turn out having a relatively strong weight across all FCIs), private sector risk premiums, long-term interest rates, and banks’ credit standards. We find that the tailored FCIs are useful as leading indicators of GDP, investment, and exports, and as a contemporaneous indicator of private consumption. Credit volumes turn out to be lagging indicators of growth. The indices inform us on macro-financial linkages in France and are used to improve the accuracy of quarterly forecasting models and high-frequency “nowcast” models. We show that FCI-augmented models could have significantly improved forecasts during and after the global financial crisis.

Keywords: Forecasting; Economic conditions; Financial markets; Vector autoregression; France; Economic theory; Real sector; Indicators of economic activity; Financial crises; Economic forecasting; financial conditions index,macro-financial linkages,vector auto-regression,refers to exports volume of goods,General,Forecasting and Simulation,financial variable,FCI,financial condition,forecast model,real economic activity (search for similar items in EconPapers)
Pages: 36
Date: 2017-12-01
New Economics Papers: this item is included in nep-eec, nep-fdg, nep-for, nep-mac and nep-rmg
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=45438 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:17/269

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Jim Beardow ().

 
Page updated 2020-08-10
Handle: RePEc:imf:imfwpa:17/269