Template-Type: ReDIF-Paper 1.0
Author-Name: Gary  Koop
Author-Name-First: Gary 
Author-Name-Last: Koop
Author-Email: gary.koop@strath.ac.uk
Author-Workplace-Name: Department of Economics, University of Strathclyde
Author-Name: Dimitris Korobilis
Author-Name-First: Dimitris
Author-Name-Last: Korobilis
Author-Email: Dimitris.Korobilis@glasgow.ac.uk
Author-Workplace-Name: Department of Economics, University of Glasgow
Title: A new index of financial conditions
Abstract: We use factor augmented vector autoregressive models with time-varying
coefficients to construct a financial conditions index. The time-variation in the
parameters allows for the weights attached to each .financial variable in the index to
evolve over time. Furthermore, we develop methods for dynamic model averaging
or selection which allow the financial variables entering into the FCI to change over
time. We discuss why such extensions of the existing literature are important and
show them to be so in an empirical application involving a wide range of .financial
variables.

Length: 24 pages
Creation-Date: 2013-06
Revision-Date: 
Publication-Status: Published
File-URL: http://www.strath.ac.uk/media/1newwebsite/departmentsubject/economics/research/researchdiscussionpapers/2013/13-07FINAL.pdf
File-Format: Application/pdf
Number: 1307
Classification-JEL: C11, C32, C52, C53, C66
Keywords: financial stress, dynamic model averaging, forecasting
Handle: RePEc:str:wpaper:1307