A Quantitative Assessment of Financial Conditions in Asia

By Carolina Osorio Buitron, Filiz D Unsal, Runchana Pongsaparn

July 1, 2011

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Carolina Osorio Buitron, Filiz D Unsal, and Runchana Pongsaparn. A Quantitative Assessment of Financial Conditions in Asia, (USA: International Monetary Fund, 2011) accessed December 3, 2024

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.

Subject: 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

Keywords: 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

Publication Details

Pages:

21
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/170
Stock No:

WPIEA2011170
ISBN:

9781462314331
ISSN:

1018-5941

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