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A Quantitative Assessment of Financial Conditions in Asia

Author/Editor: Carolina Osorio | D. Filiz Unsal | Runchana Pongsaparn
Authorized for Distribution: July 1, 2011
Electronic Access: Free Full Text (PDF file size is 1,397KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: We propose a new Financial Condition Index (FCI) for Asian economies based on two different methodologies: a VAR model and a Dynamic Factor Model. The paper shows that this index has predictive power in forecasting GDP growth and may be thus used as a leading indicator. Based on the FCI, financial conditions in Asia tightened substantially earlier in the global crisis, reflecting losses in the stock markets and tighter credit conditions. In early 2010, financial conditions in Asia recovered rapidly and reached precrisis levels, thanks to accommodative monetary policies and a rapid rebound in regional equity markets.
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Series: Working Paper No. 11/170
Subject(s): Asia | Economic conditions | Economic growth | Financial sector | Forecasting models | Global Financial Crisis 2008-2009 | Gross domestic product
Author's keyword(s): Financial conditions index | VAR | Dynamic Factor Analysis
    Published:   July 1, 2011        
    ISBN/ISSN:   9781462314331/1018-5941   Format:   Paper
    Stock No:   WPIEA2011170   Pages:   21
    Price:   US$18.00
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