## A Financial Conditions Index for South Africa

_IMF Working Papers, August 1, 2012_

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## Bibliographic details
- Authors: Nombulelo Gumata, Eliphas Ndou, Nir Klein
- Published: August 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475505450.001

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### Purpose and methodology
- Main purpose: construct a financial conditions index (FCI) for South Africa.
- Approaches used:
  - Principal component analysis (PCA).
  - Kalman filter.
- Both approaches identify an unobservable common factor from a group of external and domestic financial indicators.

### Key findings and predictive performance
- The alternative estimated FCIs share a similar trajectory over time.
- The FCIs provide powerful predictive information for near-term GDP growth (up to four quarters).
- The FCIs outperform:
  - the South African Reserve Bank’s (SARB) leading indicator, and
  - individual financial variables.

### Recent dynamics and implications
- Recent dynamics summarized:
  - Following a strong recovery in late-2009 and 2010, partly reflecting systematic reductions in the policy rate, the rebound in real economic activity, and a benign inflationary environment, financial conditions have deteriorated in recent months.
  - The deterioration has not been as sharp as in end-2008.
- Policy-relevant implication:
  - Given the FCIs’ relatively high predictive power regarding GDP growth, a further deterioration may imply that economic activity is likely to slow in the period ahead.

### Publication and metadata
- Title: A Financial Conditions Index for South Africa
- Authors: Nombulelo Gumata, Eliphas Ndou, Nir Klein
- Publication date: August 1, 2012
- Series: IMF Working Papers
- Working Paper No.: 2012/196
- Issue: 196
- Volume: 2012
- Pages: 20
- DOI: https://doi.org/10.5089/9781475505450.001
- Stock No: WPIEA2012196
- ISBN: 9781475505450
- ISSN: 1018-5941

*Source: IMF Working Paper — "A Financial Conditions Index for South Africa" by Nombulelo Gumata, Eliphas Ndou, and Nir Klein (August 1, 2012).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/a-financial-conditions-index-for-south-africa-26140_