Financial Conditions Indexes and Monetary Policy in Asia.

ASIA; UNITED States

This paper constructs quarterly financial conditions indexes (FCIs) for eight Asian economies--namely, Hong Kong, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, and Thailand--using a common factor methodology based on Hatzius et al. (2010). A wide array of financial data is included in the indexes based on identified monetary transmission channels in the literature. Bank-related indicators, various measures of financial stress and risk, and credit surveys, where available, are incorporated to fully reflect the state of the financing environment. The FCIs for Asia successfully capture important episodes in each economy's financial history, but only the indexes of financially advanced economies Japan and Singapore have sufficient forecasting power to predict output growth and inflation. High co-movement of Asian FCIs suggests highly similar monetary policies in the region that are strongly linked with monetary policy in the United States. [ABSTRACT FROM AUTHOR]

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