{
  "title": "Incorporating Macro-Financial Linkages into Forecasts Using Financial Conditions Indices: The Case of France",
  "publication": "IMF Working Papers, December 1, 2017",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2017/12/01/incorporating-macro-financial-linkages-into-forecasts-using-financial-conditions-indices-the-45438",
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  "summary": "How can information on financial conditions be used to better understand macroeconomic developments and improve macroeconomic projections?",
  "sections": [
    {
      "heading": "Summary and purpose",
      "content": "- Investigates how information on financial conditions can be used to better understand macroeconomic developments and improve macroeconomic projections for France.\n- Constructs country-specific financial conditions indices (FCIs) tailored to movements in GDP, investment, private consumption, and exports respectively.\n- Relies on a VAR approach to estimate weights of financial components in each FCI."
    },
    {
      "heading": "Methodology",
      "content": "- Approach: vector auto-regression (VAR) to estimate weights of financial components for each tailored FCI.\n- Financial components included:\n  - equity market returns (noted as having a relatively strong weight across all FCIs),\n  - private sector risk premiums,\n  - long-term interest rates,\n  - banks’ credit standards.\n- Application: FCIs incorporated into quarterly forecasting models and high-frequency “nowcast” models."
    },
    {
      "heading": "Key findings",
      "content": "- Tailored FCIs are useful as leading indicators of:\n  - GDP,\n  - investment,\n  - exports.\n- Tailored FCIs serve as a contemporaneous indicator of private consumption.\n- Credit volumes are identified as lagging indicators of growth.\n- FCI-augmented models could have significantly improved forecasts during and after the global financial crisis."
    },
    {
      "heading": "Implications for forecasting and macro-financial linkages",
      "content": "- The indices inform on macro-financial linkages in France and enhance forecast accuracy when incorporated into standard models.\n- Use of equity market returns and measures of risk premiums and credit standards improves interpretability of financial-to-real linkages in projections.\n\n---\n\n Content in this bundle\n\n- wp17269\n  - wp17269 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp17269 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2017/12/01/incorporating-macro-financial-linkages-into-forecasts-using-financial-conditions-indices-the-45438"
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    "Authors: Piyabha Kongsamut, Christian Mumssen, Anne-Charlotte Paret, Thierry Tressel",
    "Published: December 1, 2017",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484330968.001",
    "Investigates how information on financial conditions can be used to better understand macroeconomic developments and improve macroeconomic projections for France.",
    "Constructs country-specific financial conditions indices (FCIs) tailored to movements in GDP, investment, private consumption, and exports respectively.",
    "Relies on a VAR approach to estimate weights of financial components in each FCI.",
    "Approach: vector auto-regression (VAR) to estimate weights of financial components for each tailored FCI.",
    "Financial components included:",
    "Application: FCIs incorporated into quarterly forecasting models and high-frequency “nowcast” models.",
    "Tailored FCIs are useful as leading indicators of:",
    "Tailored FCIs serve as a contemporaneous indicator of private consumption.",
    "Credit volumes are identified as lagging indicators of growth.",
    "FCI-augmented models could have significantly improved forecasts during and after the global financial crisis.",
    "The indices inform on macro-financial linkages in France and enhance forecast accuracy when incorporated into standard models.",
    "Use of equity market returns and measures of risk premiums and credit standards improves interpretability of financial-to-real linkages in projections.",
    "**wp17269**"
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