## Figure 3.5. Three-Factor Model Based on Financial Conditions Index, 1995–2016

## Source details

**Canonical URL:** [Figure 3.5. Three-Factor Model Based on Financial Conditions Index, 1995–2016](https://www.imf.org/-/media/files/publications/gfsr/2017/april/figure3-5.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/gfsr/2017/april/figure3-5.pdf.md)
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### Description
- Time span: Jan. 1995 through Jan. 2016 (months labeled: Jan. 1995; Mar. 96; May 97; Jul. 98; Sep. 99; Nov. 2000; Jan. 02; Mar. 03; May 04; Jul. 05; Sep. 06; Nov. 07; Jan. 09; Mar. 10; May 11; Jul. 12; Sep. 13; Nov. 14; Jan. 16).
- Vertical scale in: (Standard deviations) with tick values shown as –2, –1, 0, 1, 2, 3, 4, 5, 6, 7.
- Three latent factors displayed:
  - Global financial crisis factor
  - Emerging market factor
  - Euro area factor

### Methodology
- Based on a dynamic factor model.
- The figure displays three latent factors that summarize the main patterns across countries’ financial conditions indices.

### Key observations
- Financial conditions around the world seem to be characterized by three global factors.
- Higher values indicate tighter-than-average financial conditions.

### Interpretation
- The three latent factors capture distinct global drivers of financial conditions over the 1995–2016 period, including a discernible Global financial crisis factor, an Emerging market factor, and a Euro area factor.
- Variations along the (Standard deviations) axis reflect deviations from average financial conditions, with positive values indicating tighter-than-average conditions and negative values indicating looser-than-average conditions.

*Source: IMF staff estimates.*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2017/april/figure3-5.pdf_