Financial Conditions Indexes for Asian Economies

Abstract

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Identifying the Factors Affecting Financial Condition of Malaysia

“…The policymakers' interest in the surveillance tool on the financial condition has doubled since the outburst of GFC (Badrudin & Abu Bakar, 2017;Debuque-Gonzales & Gochoco-Bautista, 2013;Hatzius et al, 2010). A tool like FCI earns its prominence for its ability to inform the general financial condition, taking the different financial segments within the system into account.…”

“…The Financial Condition Index (FCI) earns its prominence by providing a glance at the overall financial circumstances. The index takes an extensive array of financial variables from respective financial components within the system into account (Angelopoulou, Balfoussia, & Gibson, 2014;Debuque-Gonzales & Gochoco-Bautista, 2013Hatzius et al, 2010). Given most studies are established on providing a summary indicator to inform on the general financial condition, hence viewing financial condition by the perspective of included financial components is still novel.…”

“…BANK, FOREX, and CAP respectively. The estimated coefficient of the factor loading, , indicates the weightage of financial indicator in the index(Debuque-Gonzales & Gochoco-Bautista, 2013). It depicts the pairwise correlation between the factor and each of the included indicators.…”

Determinants Of Financial Condition In Malaysia

“…the alteration in central bank policy rate starts to materialize as it only represents one dimension of the overall evolution in the financial system to inform on the current monetary stance (Osorio et al, 2011). Financial Condition Index (FCI) aims to act as a summary indicator to distil the information about future economic condition contained by a wide array of current financial indicators (Angelopoulou et al, 2014;Debuque-Gonzales & Gochoco-Bautista, 2013Hatzius et al, 2010). The increment in FCI depicts financial easing, while a drop in the FCI illustrates potential financial stresses (Badrudin & Abu Bakar, 2017).…”

“…To assess the validity of the constructed FCI, studies often examine its predictive power on the real economy. In the predictability assessment, the FCIs often being made comparison with five useful financial indicators (Debuque-Gonzales & Gochoco-Bautista, 2013Hatzius et al, 2010). The aforesaid five financial indicators are adjusted to fit in the Malaysian context to represent the Malaysian financial condition in this research.…”