A New Index of Financial Conditions

Gary Koop and Dimitris Korobilis

MPRA Paper from University Library of Munich, Germany

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)
JEL-codes: C11 C32 C52 C53 C60 G17 (search for similar items in EconPapers)
Date: 2013-03-13
New Economics Papers: this item is included in nep-ban and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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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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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:45463

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