economics_working_paper_2021_10_en.pdf

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...

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Γλώσσα:English
Έκδοση: European Investment Bank 2021
id oapen-20.500.12657-51525
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spelling oapen-20.500.12657-515252023-01-31T18:35:50Z EIB Working Paper 2021/10 - The simpler, the better European Investment Bank Business & Economics Finance bic Book Industry Communication::K Economics, finance, business & management::KF Finance & accounting::KFF Finance 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 assess the performance of these indicators based on their ability to capture tail risk for economic activity and to predict banking and currency crises. We find that averaging across the indicators of interest, using judgmental but intuitive weights, produces financial condition indices that are not inferior to, and actually perform better than, those constructed with more sophisticated statistical methods. 2021-11-16T05:31:11Z 2021-11-16T05:31:11Z 2021 book 9789286150883 https://library.oapen.org/handle/20.500.12657/51525 eng application/pdf Attribution-NonCommercial-NoDerivatives 4.0 International economics_working_paper_2021_10_en.pdf European Investment Bank European Investment Bank https://doi.org/10.2867/149278 https://doi.org/10.2867/149278 66479d04-7b84-49c0-9a4d-db552a3ecc71 b818ba9d-2dd9-4fd7-a364-7f305aef7ee9 9789286150883 Knowledge Unlatched (KU) European Investment Bank Knowledge Unlatched open access
institution OAPEN
collection DSpace
language English
description 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 assess the performance of these indicators based on their ability to capture tail risk for economic activity and to predict banking and currency crises. We find that averaging across the indicators of interest, using judgmental but intuitive weights, produces financial condition indices that are not inferior to, and actually perform better than, those constructed with more sophisticated statistical methods.
title economics_working_paper_2021_10_en.pdf
spellingShingle economics_working_paper_2021_10_en.pdf
title_short economics_working_paper_2021_10_en.pdf
title_full economics_working_paper_2021_10_en.pdf
title_fullStr economics_working_paper_2021_10_en.pdf
title_full_unstemmed economics_working_paper_2021_10_en.pdf
title_sort economics_working_paper_2021_10_en.pdf
publisher European Investment Bank
publishDate 2021
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