A Financial Conditions Index for South Africa

 
Author/Editor: Gumata, Nombulelo ; Klein, Nir ; Ndou, Eliphas
 
Publication Date: August 01, 2012
 
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Summary: The main purpose of this paper is to construct a financial conditions index (FCI) for South Africa. The analysis extracts the index by applying two alternative approaches (principal component analysis and Kalman filter), which identify an unobservable common factor from a group of external and domestic financial indicators. The alternative estimated FCIs, which share a similar trajectory over time, seem to have a powerful predictive information for the near-term GDP growth (up to four quarters), and they outperform the South African Reserve Bank’s (SARB) leading indicator as well as individual financial variables. Their recent dynamics suggest that following a strong recovery in late-2009 and 2010, reflecting in part domestic factors such as systematic reductions in the policy rate, the rebound in real economic activity, and a benign inflationary environment, the financial conditions have deteriorated in recent months, though not as sharply as in end-2008. Given their relatively high predictive power regarding GDP growth, a further deterioration may imply that economic activity is likely to slow in the period ahead.
 
Series: Working Paper No. 12/196
Subject(s): Economic conditions | Economic growth | Economic indicators | Economic models | South Africa

Author's Keyword(s): Financial conditions index | factor analysis
 
English
Publication Date: August 01, 2012
Format: Paper
Stock No: WPIEA2012196 Pages: 19
Price:
US$18.00 (Academic Rate:
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