Building a financial conditions index for the euro area and selected euro area countries: what does it tell us about the crisis?

Eleni Angelopoulou, Hiona Balfoussia and Heather Gibson

No 147, Working Papers from Bank of Greece

Abstract: In this paper we construct Financial Conditions Indices (FCIs) for the euro area, for the period 2003 to 2011, using a wide range of prices, quantities, spreads and survey data, grounded in the theoretical literature. One FCI includes monetary policy variables, while two versions of the FCI without monetary policy are also constructed. This enables us to study the impact of monetary policy on financial conditions – indeed, overall, we find evidence of monetary policy ‘leaning against the wind’. The FCIs constructed fit in well with a narrative of financial conditions since the creation of the monetary union. FCIs for individual euro area countries are also provided, with a view to comparing financial conditions in core and periphery countries. There is evidence of significant divergence both before and during the crisis, which becomes less pronounced when monetary policy variables are included in the FCI. However, the impact of monetary policy on financial conditions appears not to be entirely symmetric across the euro area.

Keywords: fiscal policy; public debt; financial market; crisis; credit (search for similar items in EconPapers)
JEL-codes: E32 E61 E62 H61 H62 H63 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2012-07
New Economics Papers: this item is included in nep-cba, nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Building a financial conditions index for the euro area and selected euro area countries: What does it tell us about the crisis? (2014)
Working Paper: Building a financial conditions index for the euro area and selected euro area countries: what does it tell us about the crisis? (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:bog:wpaper:147

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