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Modelling the impact of aggregate financial shocks external to the Chinese economy

Qin, Duo and He, Xinhua (2012) Modelling the impact of aggregate financial shocks external to the Chinese economy. BOFIT Discussion Papers 52/2012. (Unpublished)

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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.

Item Type: Working Papers / Reports (Working Paper)
SOAS Departments & Centres: Faculty of Law and Social Sciences > Department of Economics
Depositing User: Duo Qin
Date Deposited: 19 Oct 2012 13:36
URI: http://eprints.soas.ac.uk/id/eprint/14501

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