IDEAS home Printed from https://ideas.repec.org/a/ris/ecoint/0176.html
   My bibliography  Save this article

Financial Conditions Indexes

Author

Listed:

Abstract

This paper provides an exposition of the nature, means of estimation and uses of Financial Conditions Indexes (FCIs) and their relationship to the more common Monetary Conditions Indexes (MCIs) that are used by market analysts, international organisations and central banks. Using panel datasets for Western Europe we explore how asset prices, particularly house and stock prices, can provide useful additional indicators of future changes in output and inflation. We find a clear role for house prices but a poorly determined relationship for stock prices. Unfortunately the most useful role for FCIs comes from their incorporation of high frequency data and the opportunity this gives for extracting information about changes in market expectations for inflation and output. This helps market participants make judgements about likely central bank reactions and helps central banks assess the stance of policy between forecasts. While stock prices are high frequency, house prices are not. At quarterly frequency central banks in particular will want to use traditional economic forecasting methods and summary indicators like FCIs will have only a limited role. We illustrate how such an FCI can be used, drawing on monthly data for Finland.

Suggested Citation

  • Mayes, David G. & Viren , Matti, 2002. "Financial Conditions Indexes," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 55(4), pages 521-550.
    • Handle: RePEc:ris:ecoint:0176
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chang, Chia-Lin, 2015. "Modelling a latent daily Tourism Financial Conditions Index," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 113-126.
    2. Chia-Lin Chang & Hui-Kuang Hsu & Michael McAleer, 2014. "A Tourism Conditions Index," Tinbergen Institute Discussion Papers 14-007/III, Tinbergen Institute.
    3. Nicolaas van der Wath, 2016. "Gauging financial conditions in South Africa," Working Papers 10/2016, Stellenbosch University, Department of Economics.
    4. David Mayes, 2011. "The future of financial markets: financial crisis avoidance," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 38(1), pages 77-101, February.
    5. Wang, Bo & Li, Haoran, 2021. "Downside risk, financial conditions and systemic risk in China," Pacific-Basin Finance Journal, Elsevier, vol. 68(C).
    6. Stephen P Millard & Simon J Wells, 2003. "The role of asset prices in transmitting monetary and other shocks," Bank of England working papers 188, Bank of England.
    7. David G. Mayes & Matti Virén, 2004. "Asymmetries in the Euro area economy," Macroeconomics 0404024, University Library of Munich, Germany.
    8. Mayes, David & Virén, Matti, 2009. "Changes in behaviour under EMU," Economic Modelling, Elsevier, vol. 26(4), pages 751-759, July.
    9. Broga, Kristijonas M. & Viegas, Eduardo & Jensen, Henrik Jeldtoft, 2016. "Model analysis of the link between interest rates and crashes," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 457(C), pages 225-238.
    10. Sayan Banerjee, 2017. "A Financial Condition Index for India through Incorporation of Commercial Bank and Other Lending," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 526-529.
    11. Umit Bulut, 2016. "Do Financial Conditions have a Predictive Power on Inflation in Turkey?," International Journal of Economics and Financial Issues, Econjournals, vol. 6(2), pages 621-628.
    12. repec:zbw:bofrdp:2004_009 is not listed on IDEAS
    13. Par Osterholm, 2010. "The effect on the Swedish real economy of the financial crisis," Applied Financial Economics, Taylor & Francis Journals, vol. 20(4), pages 265-274.
    14. David G. Mayes & Matti Virén, 2004. "Asymmetries in the Euro area economy," Macroeconomics 0404024, University Library of Munich, Germany.
    15. Borg Ian & Micallef Brian, 2018. "Constructing a Financial Condition Index for a Small-Open Economy: The Case of Malta," Research in Applied Economics, Macrothink Institute, vol. 10(3), pages 89-105, September.
    16. Manamani SAHOO, 2017. "Financial conditions index (FCI), inflation and growth: Some evidence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(3(612), A), pages 147-172, Autumn.
    17. Jan Willem van den End, 2006. "Indicator and boundaries of financial stability," DNB Working Papers 097, Netherlands Central Bank, Research Department.
    18. Mayes, David G. & Viren, Matti, 2005. "Monetary policy problems for currency unions: asymmetry and the problem of aggregation in the euro area," Economic Modelling, Elsevier, vol. 22(2), pages 219-251, March.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:ecoint:0176. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Angela Procopio (email available below). General contact details of provider: https://edirc.repec.org/data/cacogit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.