Financial Condition Index (FCI) Extraction for Iran

,; ,

doi:10.18869/acadpub.jemr.6.24.147

Volume 7, Issue 24 (6-2016) jemr 2016, 7(24): 147-173 | Back to browse issues page

‎ 10.18869/acadpub.jemr.6.24.147

‎ 20.1001.1.22286454.1395.6.24.3.2

Mendeley

Zotero

RefWorks

Financial Condition Index (FCI) Extraction for Iran. jemr 2016; 7 (24) :147-173
URL: http://jemr.khu.ac.ir/article-1-1132-en.html

Financial Condition Index (FCI) Extraction for Iran

Abstract: (7156 Views)

In recent years “Financial Conditions Index" (herein FCI) has been used as a key indicator of the monetary policy condition. Considering the importance of this index, the purpose of the present research is to reach a comprehensive index that includes all the monetary transmission mechanisms based on the Iranian economy. To this aim, a weighted average of the banking interest, real exchange rates , credits and price of other assets (namely the stock price index, and housing price index ), need to be calculated. The weighted average of the variables are obtained by estimating the, backward-looking aggregate supply and demand equations for Iran. In the next stage, in order to test the validity of the obtained index, and because of the importance of price stability for the central bank, the predictive power of the index from inflation in Iran was examined using Non-Nested Tests and Root Mean Square Error (RMSE). Seasonal data series are collected for the period of 1991-2012.The findings of this study show that the weight of housing price variable is higher than the other variables, whilst, the stock price index coefficient was not significant in any lag. Moreover, the results of second stage tests, indicate a good predicative power of the FCI index from the inflation in Iran.

Keywords: Financial Conditions Index, Backward- Looking Aggregate Supply and Demand, Inflation, RMSE, Non-Nested Test

Full-Text [PDF 2625 kb] (3000 Downloads)

Type of Study: Applicable | Subject: پولی و مالی
Received: 2014/10/25 | Accepted: 2015/11/9 | Published: 2016/09/19

References

1.  Branson, William, (2007), Macroeconomic theory and policy, translation Abbas Shakeri, Reed Publishing

2.  Debuque-Gonzales, Margarita; Gochoco-Bautista, Maria Socorro. 2013. Financial Conditions Indexes for Asian Economies. © Asian Development Bank. http://hdl.handle.net/11540/2083. License: CC BY 3.0 IGO.

3.  Duguay, P. (1994), "Emprical Evidence On The Strength Of The Monetary Transmission Mechanism In Canada: An Aggregate Approach" Journal Ofmonetary Economics, Vol.33 (1), Pp. 39-61. [DOI:10.1016/0304-3932(94)90013-2]

4.  Freedman, C. (1995), "The Role of Monetary Conditions And The Monetary Conditions Index In The Conduct Of Monetary Policy", Bank Of Canada Review, Autumn 1995..

5.  Gauthier, C., Graham, C. And Liu, Y. (2004), "Financial Conditions Indexes For Canada",WP 2004-22

6.  Gerlach, S. And Smets, F. (2000), "Mcis And Monetary Policy'', European Economic Review, No.44, Pp.1677-1700.

7.  Goodhart, C. (2001), "What Weight Should Be Given To Asset Prices In The Measurement Of Inflation?" The Economic Journal, 111, Pp 335-56 [DOI:10.1111/1468-0297.00634]

8.  Goodhart, C. And Hofmann, B. (2003), "Asset Prices, Financial Conditions, And Thetransmission Of Monetary Policy", Paper Presented At The Conference On Asset Prices, Exchange Rates And Monetary Policy, Stanford University, March 2-3, 2001.

9.  Hatzius, Jan, Hooper, Peter, . Mishkin. Frederic S, Schoenholtz, , Kermit L, Watson , Mark W. ( 2010), Financial Conditions Indexes: A Fresh Look after the Financial Crisis, NBER Working Paper No. 16150, http://www.nber.org/papers/w16150

10.  Hataisereerungsun, 1998. The Roles Of Monetary Conditions And The Monetary Conditions Index In The Conduct Of Monetary Policy: The Case Of Thailand Under The Floating Rate Regime, Bank Of Thailand Quarterly Bulletin

11.  Hossain, Akhtar and Anis Chowdhury, (1382). Monetary and financial policies in developing countries, Tehran, Press Institute of Economic Affairs

12.  Kamijani, A. (1373) Appropriate Policies To Stabilize Economic Activity, Tehran: Department of Economic Affairs, Ministry of Economic Affairs and Finance

13.  Kamijani, A. (1379) Mechanisms for Monetary Transmission Mechanism in the form of an open economy model Proceedings of the Central Bank of Iran, pages 31-82

14.  Kamijani, A. Ali Nzhadmhrbany, F. (1391), evaluating the effectiveness of monetary transmission channels on output and inflation and an analysis of their relative importance in the economy, Journal of Year 17, No. 2, 39-64

15.  Kirsten Thompson,Reneé Van Eyden,Rangan Gupta.(2013) Identifying A Financial Conditions Index For South Africa, Department Of Economics, University Of Pretoria, Pretoria 0002, South Africa

16.  Kesriyeli M., Kocaker I. I., 1999. Monetary Condition Index: A Monetary Policy Indicator For Turkey, Discussion Paper No. 9908, Central Bank Of Republic Of Turkey.

17.  Knedlik, Tobias ,2005, Luxembourg, Estimating The Monetary Conditions Index For South Africa

18.  Khataee,M and pour Seifi R. (1385). Monetary policy instruments and rules known in Iran's economy, Economic Research Journal, No. 237, page 267-73

19.  Khorsandy, M, Eslamloueyan ,K, Zvalnvr, SH (1391), monetary conditions index for the Iranian economy , Journal of Economic Research, , the twelfth year, the first issue ,Spring ,pages 31-57

20.  Jamshidi, A., (1381). Monetary policy in Iran, Volume 1, Tehran Iran Industrial Development Investment Company Publishing

21.  Lack, C.P. (2003), "A Financial Conditions Index for Switzerland", Monetary Policy in a Changing Environment, BIS Paper No. 19, Bank for International Settlement, Basel, pp. 398-413.

22.  Mayes, David, and Matti Virén. 2001. Financial Conditions Indexes. Bank of Finland Discussion Paper No. 2001–17.

23.  Mishkin, Frederic, (1998), "The Channels of Monetary Transmission: Lessons for Monetary

24. Policy ," NBER Working Paper No. 5464.

25.  Peng W., Leung F., 2005. A Monetary Conditions Index For Mainland China, Hong Kong Monetary Authority Quarterly Bulletin

26.  Rahmani, T. (1381). Macroeconomics, vol. 1 and 2, Tehran, brothers Publishing,

27.  Renani Sharifi, H., Ghobadi, S., (1391), to investigate the effect of monetary policy on GDP and inflation through housing price index, economic development of programming, first year, first issue, spring and summer 1, 48-69

28.  Renani Sharifi, H., Kamijani, Akbar and other cities, H. (1389), Study on Monetary Transmission Mechanism in Iran: A Structural Vector Auto Regressive approach, Journal of Money and the economy, Issue 2, Winter 1388

29.  R. Kannan, Siddhartha Sanyal And Binod Bihari Bhoi,( 2006), Reserve Bank Of India Occasional Papers, Monetary Conditions Index For India, Vol. 27,Pp.58-86

30.  Sadeghi, Hossein, Rostamzadeh, P and H Asgharpour (1386), separation of monetary policy from the monetary conditions index in Iran, a useful, December, Issue 13: 59-82

31.  Shirinbakhsh, Shams Ali and Khansari, Hassan, (1384). Eviews applications in econometrics, Tehran Research Institute of Economic Affairs,

32.  Svensson, L. (2000), 'Open-Economy Inflation Targeting',Journal International Economics, 50, Pp 155-183

33.  Tashkini, A., (1384). Using econometric microfit, Tehran, Tehran University Publication

34.  Vashghani, M. (1390), the monetary transmission mechanism and effectiveness of monetary policy, and economic policy issues, monthly economic magazine, Issue 12, March: 159-166