Incorporating Macro-Financial Linkages into Forecasts Using Financial Conditions Indices: The Case of France

Incorporating Macro-Financial Linkages into Forecasts Using Financial Conditions Indices: The Case of France
Author :
Publisher : International Monetary Fund
Total Pages : 36
Release :
ISBN-10 : 9781484331750
ISBN-13 : 1484331753
Rating : 4/5 (50 Downloads)

Book Synopsis Incorporating Macro-Financial Linkages into Forecasts Using Financial Conditions Indices: The Case of France by : Ms.Piyabha Kongsamut

Download or read book Incorporating Macro-Financial Linkages into Forecasts Using Financial Conditions Indices: The Case of France written by Ms.Piyabha Kongsamut and published by International Monetary Fund. This book was released on 2017-12-02 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: How can information on financial conditions be used to better understand macroeconomic developments and improve macroeconomic projections? We investigate this question for France by constructing country-specific financial conditions indices (FCIs) that are tailored to movements in GDP, investment, private consumption and exports respectively. We rely on a VAR approach to estimate the weights of the financial components of each FCI, including equity market returns (which turn out having a relatively strong weight across all FCIs), private sector risk premiums, long-term interest rates, and banks’ credit standards. We find that the tailored FCIs are useful as leading indicators of GDP, investment, and exports, and as a contemporaneous indicator of private consumption. Credit volumes turn out to be lagging indicators of growth. The indices inform us on macro-financial linkages in France and are used to improve the accuracy of quarterly forecasting models and high-frequency “nowcast” models. We show that FCI-augmented models could have significantly improved forecasts during and after the global financial crisis.


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