Financial Condition Index (FCI) Extraction for Iran

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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

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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: (7113 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] (2994 Downloads)

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

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