Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70566
Authors: 
Brave, Scott
Butters, R. Andrew
Year of Publication: 
2010
Series/Report no.: 
Working Paper, Federal Reserve Bank of Chicago 2010-07
Abstract: 
By incorporating the Harvey accumulator into the large approximate dynamic factor framework of Doz et al. (2006), we are able to construct a coincident index of financial conditions from a large unbalanced panel of mixed frequency financial indicators. We relate our financial conditions index, or FCI, to the concept of a financial crisis using Markov-switching techniques. After demonstrating the ability of the index to capture crisis periods in U.S. financial history, we present several policy-geared threshold rules for the FCI using Receiver Operator Characteristics (ROC) curve analysis.
Subjects: 
financial crisis
financial conditions
dynamic factor
EM algorithm
Harvey accumulator
ROC curve
Markov-switching
JEL: 
G01
G17
C22
Document Type: 
Working Paper

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