Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/229065
Authors: 
Arrigoni, Simone
Bobasu, Alina
Venditti, Fabrizio
Year of Publication: 
2020
Series/Report no.: 
ECB Working Paper No. 2451
Abstract: 
In this paper we assess the merits of financial condition indices constructed using simple averages versus a more sophisticated alternative that uses factor models with time varying parameters. Our analysis is based on data for 18 advanced and emerging economies at a monthly frequency covering about 70% of the world's GDP. We use four criteria to assess the performance of these indicators, namely quantile regressions, Structural Vector Autoregressions, the ability of the indices to predict banking crises and their response to US monetary policy shocks. We find that averaging across the indicators of interest, using judgemental but intuitive weights, produces financial condition indices that are not inferior to, and actually perform better than, those constructed with more sophisticated statistical methods.
Subjects: 
financial conditions
quantile regressions
banking crises
SVARs
spillovers
JEL: 
E32
E44
C11
C55
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-4368-0
Document Type: 
Working Paper

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