A New Index of Financial Conditions

Gary Koop; Dimitris Korobilis

A New Index of Financial Conditions

Gary Koop
, Dimitris Korobilis

Research output: Working paper/Preprint/Pre-registration › Discussion paper

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Abstract

We use factor augmented vector autoregressive models with time-varying coefficient to construct a financial conditions index. The time-variation in the parameters allows for the weights attached to each financial variable in the index to evolve over time. Furthermore, we develop methods for dynamic model averaging or selection which allow the financial variables entering into the FCI to change over time. We discuss why such extensions of the existing literature are important and show them to be so in an empirical application involving a wide range of financial variables.

Original language	English
Place of Publication	Glasgow
Publisher	University of Strathclyde
Number of pages	25
Publication status	Published - 12 Mar 2013

Publication series

Name	Strathlcyde Discussion Papers in Economics
Publisher	University of Strathclyde
Volume	13-07

Keywords

financial stress
dynamic model averaging
forecasting

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Koop-Korobilis-2013-A-new-index-of-financial-conditionsFinal published version, 1.06 MB

Cite this

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abstract = "We use factor augmented vector autoregressive models with time-varying coefficient to construct a financial conditions index. The time-variation in the parameters allows for the weights attached to each financial variable in the index to evolve over time. Furthermore, we develop methods for dynamic model averaging or selection which allow the financial variables entering into the FCI to change over time. We discuss why such extensions of the existing literature are important and show them to be so in an empirical application involving a wide range of financial variables.",

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N2 - We use factor augmented vector autoregressive models with time-varying coefficient to construct a financial conditions index. The time-variation in the parameters allows for the weights attached to each financial variable in the index to evolve over time. Furthermore, we develop methods for dynamic model averaging or selection which allow the financial variables entering into the FCI to change over time. We discuss why such extensions of the existing literature are important and show them to be so in an empirical application involving a wide range of financial variables.

AB - We use factor augmented vector autoregressive models with time-varying coefficient to construct a financial conditions index. The time-variation in the parameters allows for the weights attached to each financial variable in the index to evolve over time. Furthermore, we develop methods for dynamic model averaging or selection which allow the financial variables entering into the FCI to change over time. We discuss why such extensions of the existing literature are important and show them to be so in an empirical application involving a wide range of financial variables.

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KW - dynamic model averaging

KW - forecasting

UR - https://www.strath.ac.uk/business/economics/research/discussionpapers/

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BT - A New Index of Financial Conditions

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A New Index of Financial Conditions

Abstract

Publication series

Keywords

Access to Document

Other files and links

Fingerprint

Macroeconomic Forecasting in Turbulent Times

Improving policy-relevant analysis in the UK, Europe and USA through novel macroeconometric methods

Cite this

A New Index of Financial Conditions

Abstract

Publication series

Keywords

Access to Document

Other files and links

Fingerprint

Projects

Macroeconomic Forecasting in Turbulent Times

Impacts

Improving policy-relevant analysis in the UK, Europe and USA through novel macroeconometric methods

Cite this