Financial stability index and business cycle in Malaysia
Financial sector plays an important part in a system of economy, in which the intermediation function of financial intermediaries is of particular important in channeling funds. However, it exposes to potential financial risks that might lead to economic crisis. This study develops a financial condi...
| Main Authors: | , |
|---|---|
| Format: | Conference or Workshop Item |
| Language: | English |
| Published: |
Faculty of Economics and Management, Universiti Putra Malaysia
2012
|
| Online Access: | http://psasir.upm.edu.my/id/eprint/51256/1/12-14.pdf |
| _version_ | 1825930494529765376 |
|---|---|
| author | Koong, Seow Shin Law, Siong Hook |
| author_facet | Koong, Seow Shin Law, Siong Hook |
| author_sort | Koong, Seow Shin |
| collection | UPM |
| description | Financial sector plays an important part in a system of economy, in which the intermediation function of financial intermediaries is of particular important in channeling funds. However, it exposes to potential financial risks that might lead to economic crisis. This study develops a financial conditions index and relates its explanatory power on Malaysian business cycle. A wide array of financial indicators is used to construct the index using dynamic factor model. The empirical analyses demonstrate that the constructed index appears to have explanatory power on the business cycle. Testing the forecast rationality, it is found that the business cycle forecast is rational and there is incremental information content at 3-months horizon. Moreover, the changes of the index were found to lead the movement in business cycle. Hence, the constructed index can act as a leading indicator in explaining and forecasting Malaysian business cycle as well as an early warning for policymakers to make appropriate and timely policy actions. |
| first_indexed | 2024-03-06T09:12:24Z |
| format | Conference or Workshop Item |
| id | upm.eprints-51256 |
| institution | Universiti Putra Malaysia |
| language | English |
| last_indexed | 2024-03-06T09:12:24Z |
| publishDate | 2012 |
| publisher | Faculty of Economics and Management, Universiti Putra Malaysia |
| record_format | dspace |
| spelling | upm.eprints-512562017-04-03T07:43:28Z http://psasir.upm.edu.my/id/eprint/51256/ Financial stability index and business cycle in Malaysia Koong, Seow Shin Law, Siong Hook Financial sector plays an important part in a system of economy, in which the intermediation function of financial intermediaries is of particular important in channeling funds. However, it exposes to potential financial risks that might lead to economic crisis. This study develops a financial conditions index and relates its explanatory power on Malaysian business cycle. A wide array of financial indicators is used to construct the index using dynamic factor model. The empirical analyses demonstrate that the constructed index appears to have explanatory power on the business cycle. Testing the forecast rationality, it is found that the business cycle forecast is rational and there is incremental information content at 3-months horizon. Moreover, the changes of the index were found to lead the movement in business cycle. Hence, the constructed index can act as a leading indicator in explaining and forecasting Malaysian business cycle as well as an early warning for policymakers to make appropriate and timely policy actions. Faculty of Economics and Management, Universiti Putra Malaysia 2012 Conference or Workshop Item PeerReviewed application/pdf en http://psasir.upm.edu.my/id/eprint/51256/1/12-14.pdf Koong, Seow Shin and Law, Siong Hook (2012) Financial stability index and business cycle in Malaysia. In: National Research & Innovation Conference for Graduate Students in Social Sciences (GS-NRIC 2012), 7-9 Dec. 2012, Mahkota Hotel, Melaka. (pp. 308-326). |
| spellingShingle | Koong, Seow Shin Law, Siong Hook Financial stability index and business cycle in Malaysia |
| title | Financial stability index and business cycle in Malaysia |
| title_full | Financial stability index and business cycle in Malaysia |
| title_fullStr | Financial stability index and business cycle in Malaysia |
| title_full_unstemmed | Financial stability index and business cycle in Malaysia |
| title_short | Financial stability index and business cycle in Malaysia |
| title_sort | financial stability index and business cycle in malaysia |
| url | http://psasir.upm.edu.my/id/eprint/51256/1/12-14.pdf |
| work_keys_str_mv | AT koongseowshin financialstabilityindexandbusinesscycleinmalaysia AT lawsionghook financialstabilityindexandbusinesscycleinmalaysia |