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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
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OAPEN
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English
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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.
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economics_working_paper_2021_10_en.pdf
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economics_working_paper_2021_10_en.pdf
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title_short |
economics_working_paper_2021_10_en.pdf
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economics_working_paper_2021_10_en.pdf
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title_fullStr |
economics_working_paper_2021_10_en.pdf
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economics_working_paper_2021_10_en.pdf
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economics_working_paper_2021_10_en.pdf
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European Investment Bank
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2021
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1771297511218085888
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