A Financial Conditions Index for Greece

October 2, 2015

Preview Citation

Format: Chicago

Jonathan F Manning, and Maral Shamloo. A Financial Conditions Index for Greece, (USA: International Monetary Fund, 2015) accessed November 12, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We construct a Financial Conditions Index (FCI) for Greece as a surveillance tool to quantify the degree of the stress in the financial sector. We use principal component analysis to capture the information content of several financial indicators through a single index. We also construct an alternative FCI by purging the business cycle and monetary policy effects on the input variables, and argue that this alternative index is a better indicator of exogenous financial shocks, and thus could be interpreted as a measure of the efficacy of transmission mechanism. We replicate the index for the euro area (EA) as a whole and show that although the developments in the EA were qualitatively in line with those in Greece, they were quantitatively much milder. Our results confirm that monetary transmission was less effective in Greece compared to the EA as a whole. Finally, we argue that our index can be a potentially useful forecasting tool for credit growth.

Subject: Banking, Credit, Financial conditions index, Financial institutions, Financial sector policy and analysis, Financial services, Financial statements, Loans, Money, Public financial management (PFM), Yield curve

Keywords: Credit, ECB balance sheet, ECB liability, Europe, FCI deviation, FCI index, FCI reaction, Financial condition, Financial conditions, Financial conditions index, Financial statements, Greece, IMF staff calculation, Loans, Principal component analysis, Sample FCI, Transmission mechanism, WP, Yield curve

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/220
Stock No:

WPIEA2015220
ISBN:

9781513520230
ISSN:

1018-5941

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