A Quantitative Assessment of Financial Conditions in Asia

We propose a new Financial Condition Index (FCI) for Asian economies based on two different methodologies: a VAR model and a Dynamic Factor Model. The paper shows that this index has predictive power in forecasting GDP growth and may be thus used as a leading indicator. Based on the FCI, financial conditions in Asia tightened substantially earlier in the global crisis, reflecting losses in the stock markets and tighter credit conditions. In early 2010, financial conditions in Asia recovered rapidly and reached precrisis levels, thanks to accommodative monetary policies and a rapid rebound in regional equity markets.Asia;Economic growth;Economic conditions;Financial sector;Forecasting models;Global Financial Crisis 2008-2009;Gross domestic product;exchange rate, stock market, effective exchange rate, nominal effective exchange rate, bond, stock price index, equity markets, stock price, government bond, bond yield, government bond yield, stock prices, exchange rates, deposit rate, stock market indices, treasury bond, rediscount, nominal effective exchange rate index, discount rate, foreign exchange rate, real exchange rate, financial markets, bonds, real exchange rates, treasury bond yields, benchmark government bond, international financial statistics, foreign exchange, rediscount rate, exchange rate depreciation, equity market, stock markets, bond yields, asset markets, exchange rate index