The estimation of financial conditions indices for the major OECD countries

Abstract

Financial conditions indices (FCIs) have been developed to summarise financial conditions and also supplement more traditional macroeconomic forecasting. They capture market expectations but also quantitative and survey information. This paper seeks to provide up to date financial conditions indices for six countries, France, Germany, Italy, Japan, the United Kingdom and the United States, as well as the euro area, updating earlier results by the OECD. The addition of the period of the financial crisis period has made radical changes to the original results of the FCI estimation. Country- specific estimates provide a number of wrong signs and insignificant coefficients. We find in general that the panel (and NiGEM) based FCIs are more satisfactory. Furthermore, a promising avenue for further research is the dynamic factor/principal components approach.