The Construction And Application Of China’s Financial Condition Index

In the era of rapid economic development but the potential financial crisis persists,the development of the financial market is directly related to the quality of the country’s overall economic development.Foreign countries have successively studied the method of constructing the national financial status index,but my country has not yet formulated a unified financial status.The index construction system is therefore very important to the study of my country’s financial status index.The main research contents of this article are as follows:This paper first predicts my country’s monthly GDP data containing quarterly information through a mixed dynamic factor model,and then uses the predicted GDP data as a macroeconomic variable to construct financial indicators,and combines the five types of interest rates,exchange rates,asset prices,and money supply.The monthly data of the indicator extracts the common factors of financial variables through the dynamic factor model,and then determines its weight in the financial condition index through the impact of these common factors on inflation,and then obtains my country’s monthly financial condition index.Then through the periodic spectrum,the square coherence spectrum and the phase spectrum in the spectrum analysis,the periodical characteristics,correlation degree and time lag characteristics of the financial condition index constructed in this paper and the macroeconomic variables GDP and CPI are analyzed.The results show that my country’s financial condition index and macroeconomic variables have similar fluctuation cycles,with a period of roughly 40 months;at the same time,the financial condition index constructed in this article has a strong correlation with macroeconomic variables,and there is an increasing correlation in a long period.In addition,through phase spectrum analysis,it is found that there is a clear lead between the financial condition index constructed in this article and GDP and CPI,that is,the fluctuation of my country’s financial condition index is ahead of the fluctuation of GDP and CPI,and the lead time is roughly 10 months.This not only verifies the validity of the financial condition index constructed in this article,but also shows that the financial condition index constructed in this article can be used as a leading indicator of the macro economy and can predict macroeconomic fluctuations to a certain extent.In addition,through the analysis of Markov zoning system transfer,it is found that the financial condition index constructed in this paper has a clear threshold effect.Through the Markov zoning system transfer,the two regional systems of financial conditions can be well identified,namely,financial condition is good and financial Deteriorating conditions;using impulse response functions to study the impact of financial status indexes of different regions on the macroeconomic variables GDP and CPI,and found that when financial conditions are good,inflation can be well restrained and output growth can be promoted;when financial conditions are deteriorating At that time,inflation will be aggravated and output will be suppressed.Finally,this paper uses the constructed financial condition index and the US monthly financial condition index published by the Bank of Chicago to analyze the correlation and change characteristics between the financial condition indexes of the two countries.Through research,it is found that my country’s FCI is ahead of the US NFCI for about 12 months in the short and long periods,and it lags behind the US financial condition index by 17 months in the medium period.However,from the perspective of the whole cycle,the FCI of my country and the NFCI of the United States fluctuate synchronously and influence each other.In addition,the development of China’s financial conditions has obvious cyclical changes in the impact of the US financial condition index,and the overall positive impact is greater than the negative impact,but the financial conditions of the United States have a greater negative impact on my country’s financial conditions.It can be seen that the FCI constructed in this article can be used as a leading indicator of my country’s macroeconomic variables,and has a certain predictive effect on my country’s macroeconomic fluctuations.At the same time,changes in the financial conditions of China and the United States in different cycles will have different effects on each other.In general,the degree of dependence on the financial conditions of China and the United States tends to be relatively balanced.