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Financial Imbalance Index as a New Early Warning Indicator: Methods and Applications in the Chinese Economy
Author(s) -
Ma Yong,
Chen Yulu
Publication year - 2014
Publication title -
china and world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.815
H-Index - 28
eISSN - 1749-124X
pISSN - 1671-2234
DOI - 10.1111/cwe.12092
Subject(s) - stylized fact , index (typography) , economics , china , systemic risk , warning system , financial analysis , financial market , finance , economic indicator , business , financial crisis , macroeconomics , engineering , world wide web , computer science , political science , law , aerospace engineering
Based on the stylized facts of financial crises and systemic risk accumulation, this paper constructs a new financial imbalance index (FII) from the perspective of endogenous financial cycles and assesses its application in China's macro‐financial analysis. The results show that the FII is not only an effective index to detect financial imbalances in China's economic cycles, but is also more accurate than and plays more of a leading role than conventional indicators, such as the consumer price index, the financial conditions index and the purchasing managers indicator. Empirical analysis shows that the FII can be used as an effective indicator to measure systemic financial risk, and can provide policy‐makers and market participants with useful information to make appropriate decisions.