Modelling the impact of aggregate financial shocks external to the Chinese economyDuo Qin and Xinhua He No 25/2012, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT) Abstract: Ways of extracting financial condition indices (FCI) are explored and alternative FCIs external to the Chinese economy are constructed to model their predictive content. The exploration aims at highlighting the rich and varied dynamic features of financial variables underlying FCIs and the importance of synchronising dynamic information between FCIs and the real-sector variables to be forecasted. The modelling experiment aims at improving the forecasting model upon which the FCIs are assessed. Four variables are chosen as the likely macro channel of the FCIs affecting the Chinese economy. It is found that the FCI-led models enjoy forecasting advantages over a benchmark model in three out of the four variables, although the benchmark model is not dominated by the FCI-led models when judged by in-sample encompassing tests. The evidence indicates the increasing exposure of the Chinese economy to the global financial conditions. Keywords: financial index; dynamic factor; VAR; error correction; encompassing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofitp:bdp2012_025 Access Statistics for this paper More papers in BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT) Contact information at EDIRC. |
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