## Incorporating Macro-Financial Linkages into Forecasts Using Financial Conditions Indices: The Case of France

_IMF Working Papers, December 1, 2017_

## Source details

**Canonical URL:** [Incorporating Macro-Financial Linkages into Forecasts Using Financial Conditions Indices: The Case of France](https://www.imf.org/en/publications/wp/issues/2017/12/01/incorporating-macro-financial-linkages-into-forecasts-using-financial-conditions-indices-the-45438)

## Other formats

- [Markdown version](/en/publications/wp/issues/2017/12/01/incorporating-macro-financial-linkages-into-forecasts-using-financial-conditions-indices-the-45438/index.md)
- [Structured JSON version](/en/publications/wp/issues/2017/12/01/incorporating-macro-financial-linkages-into-forecasts-using-financial-conditions-indices-the-45438/index.json)
- [Bundle manifest](/en/publications/wp/issues/2017/12/01/incorporating-macro-financial-linkages-into-forecasts-using-financial-conditions-indices-the-45438/bundle-manifest.json)

## Bibliographic details
- 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

---

### Summary and purpose
- 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.

### Methodology
- Approach: vector auto-regression (VAR) to estimate weights of financial components for each tailored FCI.
- Financial components included:
  - equity market returns (noted as having a relatively strong weight across all FCIs),
  - private sector risk premiums,
  - long-term interest rates,
  - banks’ credit standards.
- Application: FCIs incorporated into quarterly forecasting models and high-frequency “nowcast” models.

### Key findings
- Tailored FCIs are useful as leading indicators of:
  - GDP,
  - investment,
  - exports.
- 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.

### Implications for forecasting and macro-financial linkages
- 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.

---

## Content in this bundle

- **wp17269**
  - [wp17269 (Markdown version)](/-/media/files/publications/wp/2017/wp17269.pdf.md){rel="alternate" type="text/markdown"}
  - [wp17269 (PDF)](/-/media/files/publications/wp/2017/wp17269.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2017/12/01/incorporating-macro-financial-linkages-into-forecasts-using-financial-conditions-indices-the-45438_