Financial Conditions Indexes for Asian Economies

Publication | January 2013

Constructs financial conditions indexes (FCIs) for five Asian economies: Hong Kong, China; Japan; the Republic of Korea; Malaysia; and Singapore. FCIs summarize the current state of financial variables linked to real economic activity.

Financial conditions indexes (FCIs) are constructed for five Asian economies, namely, Hong Kong, China; Japan; the Republic of Korea; Malaysia; and Singapore, using a principal component analysis (PCA) methodology from Hatzius et al. (2010) and quarterly data. Various financial stress indicators are included, allowing the constructed Financial Condition Index to capture important episodes in each economy's financial history. The predictive power of the constructed FCIs is higher than that of benchmark AR models and they generally outperform single financial indicators. A decomposition of the FCIs sheds light on particular sources of financial stress. A regional FCI based on the individual economy FCIs is also constructed.

Contents 

  • Abstract
  • Introduction
  • Existing FCIs for Asian Economies
  • Econometric Approaches to Constructing FCIs
  • Constructing Individual Economy Asian FCIs
  • Evaluating the Newly Constructed Asian FCIs
  • Concluding Remarks
  • References