A Quantitative Assessment of Financial Conditions in Asia
IMF Working Papers, July 1, 2011
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Bibliographic details
- Authors: Filiz D Unsal, Runchana Pongsaparn
- Published: July 1, 2011
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781462314331.001
Summary
- Proposes a new Financial Condition Index (FCI) for Asian economies.
- FCI constructed using two methodologies: a VAR model and a Dynamic Factor Model.
- The FCI has predictive power in forecasting GDP growth and may be used as a leading indicator.
- Financial conditions in Asia tightened substantially earlier in the global crisis, reflecting losses in stock markets and tighter credit conditions.
- In early 2010, financial conditions in Asia recovered rapidly and reached precrisis levels, aided by accommodative monetary policies and a rapid rebound in regional equity markets.
Methodology
- Two modeling approaches used to construct the FCI:
- VAR (Vector autoregression) model.
- Dynamic Factor Model (Dynamic Factor Analysis).
Key Findings and Statistics
- The FCI shows predictive power for GDP growth forecasting.
- Timing of crisis impact:
- Financial conditions in Asia tightened substantially earlier in the global crisis.
- Recovery: By early 2010, conditions had recovered to precrisis levels.
- Drivers of tightening and recovery:
- Tightening: losses in the stock markets and tighter credit conditions.
- Recovery: accommodative monetary policies and rapid rebound in regional equity markets.
Policy Implications and Uses
- The FCI can be used as a leading indicator to inform macroeconomic policy and surveillance in Asian economies.
- Monitoring FCI movements can provide early signals of tightening or easing financial conditions that may affect GDP growth.
Subject Tags and Keywords (as listed)
- Central bank policy rate, Econometric analysis, Exchange rates, Financial conditions index, Financial markets, Financial sector policy and analysis, Financial services, Foreign exchange, Stock markets, Vector autoregression
- Asia and Pacific, Central bank policy rate, Dynamic Factor Analysis, exchange rate, Exchange rates, FCI coefficient, FCI ease, FCI index, FCI indices, Financial conditions index, GDP growth, Global, monetary policy, Stock markets, VAR, Vector autoregression, WP
Filiz D Unsal and Runchana Pongsaparn; "A Quantitative Assessment of Financial Conditions in Asia", IMF Working Papers, July 1, 2011.