{
  "title": "Financial Conditions in Europe: Dynamics, Drivers, and Macroeconomic Implications",
  "publication": "IMF Working Papers, September 29, 2023",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2023/09/29/financial-conditions-in-europe-dynamics-drivers-and-macroeconomic-implications-539653",
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  "summary": "We develop a new measure of financial conditions (FCs) that targets the growth of financial liabilities using the partial least square methodology. We then estimate financial condition indexes (FCIs) across European economies, both at the aggregate and sectoral levels.",
  "sections": [
    {
      "heading": "Methodology",
      "content": "- Develops a new measure of financial conditions (FCs) that targets the growth of financial liabilities using the partial least square methodology.\n- Estimates financial condition indexes (FCIs) across European economies at both the aggregate and sectoral levels.\n- Decomposes changes in FCs into several factors: credit availability and costs, price of risk, policy stance, and funding constraints.\n- Assesses macroeconomic effects using the inverse probability weighting method over the sample period from 2000 to 2023."
    },
    {
      "heading": "Key findings",
      "content": "- Financial conditions loosened during the pandemic thanks to policy support but started to tighten significantly since mid-2021.\n- The study provides FCIs across European economies and for sectors, based on the liability-growth-targeted FCs measure."
    },
    {
      "heading": "Quantitative macroeconomic impacts (three-year horizon)",
      "content": "- A shift from a neutral to a tight FCI regime (such as the ongoing episode for most European countries) will on average:\n  - Lower output by 2.2 percent.\n  - Lower inflation by 0.7 percentage points.\n  - Increase unemployment by 0.3 percentage points."
    },
    {
      "heading": "Drivers and decomposition",
      "content": "- Changes in financial conditions are decomposed into:\n  - Credit availability and costs\n  - Price of risk\n  - Policy stance\n  - Funding constraints"
    },
    {
      "heading": "Publication and data notes",
      "content": "- Authors: Giovanni Borraccia, Raphael A Espinoza, Vincenzo Guzzo, Romain Lafarguette, Fuda Jiang, Vina Nguyen, Miguel A. Segoviano, Philippe Wingender\n- Date: September 29, 2023\n- Series: Working Paper No. 2023/209\n- Pages: 58\n- Issue: 209\n- DOI: https://doi.org/10.5089/9798400254789.001\n- ISBN: 9798400254789\n- ISSN: 1018-5941\n- Data link: Link to data for this title (ZIP) provided on the publication page\n\nIMF Working Paper: \"Financial Conditions in Europe: Dynamics, Drivers, and Macroeconomic Implications\", Working Paper No. 2023/209\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2023/09/29/financial-conditions-in-europe-dynamics-drivers-and-macroeconomic-implications-539653"
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    "Authors: Giovanni Borraccia, Raphael A Espinoza, Vincenzo Guzzo, Romain Lafarguette, Fuda Jiang, Vina Nguyen, Miguel A. Segoviano, Philippe Wingender",
    "Published: September 29, 2023",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9798400254789.001",
    "Develops a new measure of financial conditions (FCs) that targets the growth of financial liabilities using the partial least square methodology.",
    "Estimates financial condition indexes (FCIs) across European economies at both the aggregate and sectoral levels.",
    "Decomposes changes in FCs into several factors: credit availability and costs, price of risk, policy stance, and funding constraints.",
    "Assesses macroeconomic effects using the inverse probability weighting method over the sample period from 2000 to 2023.",
    "Financial conditions loosened during the pandemic thanks to policy support but started to tighten significantly since mid-2021.",
    "The study provides FCIs across European economies and for sectors, based on the liability-growth-targeted FCs measure.",
    "A shift from a neutral to a tight FCI regime (such as the ongoing episode for most European countries) will on average:",
    "Changes in financial conditions are decomposed into:",
    "Authors: Giovanni Borraccia, Raphael A Espinoza, Vincenzo Guzzo, Romain Lafarguette, Fuda Jiang, Vina Nguyen, Miguel A. Segoviano, Philippe Wingender",
    "Date: September 29, 2023",
    "Series: Working Paper No. 2023/209",
    "Pages: 58",
    "Issue: 209",
    "DOI: https://doi.org/10.5089/9798400254789.001",
    "ISBN: 9798400254789",
    "ISSN: 1018-5941",
    "Data link: Link to data for this title (ZIP) provided on the publication page",
    "**Working Paper**"
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