An Emerging Market Financial Conditions Index: A VAR Approach

Rémy Charleroy (remy.charleroy@gmail.com) and Michael Stemmer
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Rémy Charleroy: Centre d'Economie de la Sorbonne, https://centredeconomiesorbonne.univ-paris1.fr

Documents de travail du Centre d'Economie de la Sorbonne from Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne

Abstract: The recent financial crisis has heightened the interest in the impact of financial sector developments on the macroeconomic condition of countries. By employing a rolling-window Vector Auto-Regressive method based on monthly data for a time span between January 2001 and March 2013, this article sets up a comprehensive financial conditions index for a set of major emerging countries. The index sheds light on the various triggers of financial crises during this period and captures both domestic developments as well as global spillover effects. Index dynamics exhibit an overall abrupt slowdown due to the 2007-2008 Financial Crisis, precipitated primarily through a global liquidity squeeze and overall financial sector strain. In some countries, rising volatility of financial conditions thereafter has substantially been sparked by nominal effective exchange rate movements. Tested on its forecasting applicability, the inclusion of macroeconomic and financial variables enables the index to also perform well as a leading indicator for business cycles

Keywords: Emerging Markets; financial conditions index; VAR; leading indicator (search for similar items in EconPapers)
JEL-codes: C32 C53 E44 F42 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2014-10
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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ftp://mse.univ-paris1.fr/pub/mse/CES2014/14068.pdf (application/pdf)

Related works:
Working Paper: An Emerging Market Financial Conditions Index: A VAR Approach (2014)
Working Paper: An Emerging Market Financial Conditions Index: A VAR Approach (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:mse:cesdoc:14068

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