Financial conditions index: Early and leading indicator for Colombia

Temas de Estabilidad Financiera
Número: 
55
Publicado: 
Clasificación JEL: 
E32, E44, E47, E51
Palabras clave: 
Índice de condiciones financieras, Indicadores de alerta temprana, Indicadores principales, Supervisión macroprudencial

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Julián Alonso Cárdenas-Cárdenas, Deicy Johana Cristiano-Botia, Eliana Rocío González-Molano, Carlos Alfonso Huertas-Campos
Luis E. Arango, Juan José Ospina-Tejeiro, Fernando Arias-Rodríguez, Oscar Iván Ávila-Montealegre, Jaime Andrés Collazos-Rodríguez, Diana M. Cortázar Gómez, Juan Pablo Cote-Barón, Julio Escobar-Potes, Aarón Levi Garavito-Acosta, Franky Juliano Galeano-Ramírez, Eliana Rocío González-Molano, Maria Camila Gomez Cardona, Anderson Grajales, David Camilo López-Valenzuela, Wilmer Martinez-Rivera, Nicolás Martínez-Cortés, Rocío Clara Alexandra Mora-Quiñones, Sara Naranjo-Saldarriaga, Antonio Orozco, Daniel Parra-Amado, Julián Pérez-Amaya, José Pulido, Karen L. Pulido-Mahecha, Carolina Ramírez-Rodríguez, Sergio Restrepo Ángel, José Vicente Romero-Chamorro, Nicol Valeria Rodríguez-Rodríguez, Norberto Rodríguez-Niño, Diego Hernán Rodríguez-Hernández, Carlos D. Rojas-Martínez, Johana Andrea Sanabria-Domínguez, Diego Vásquez-Escobar
Luis Armando Galvis-Aponte, Adriana Isabel Ortega-Arrieta, Adriana Marcela Rivera-Zárate

This paper is an attempt at constructing a simple and effective macroprudential tool for policymakers. By integrating the joint occurrences of the main financial markets in Colombia into a single Financial Conditions Index (FCI), we hope to synthesize the information embedded in them regarding possible future economic outcomes. To do this, we use monthly data on 21 variables for the period comprised between July, 1991 - June, 2010 and apply PCA on their correlation matrix. On the one hand, we evaluate the predictive capacity of the FCI in forecasting GDP growth at different time horizons and find that it performs better as a leading indicator of real activity than other individual financial variables and an autoregressive model of GDP growth. Additionally, we are interested in testing the FCI’s long-term capability to correctly anticipate periods of distress in the economy, and find that the index could be used as an effective early-warning indicator. Hence, our FCI seems to represent a useful instrument for both financial stability and macroprudential supervision purposes.