Financial Conditions Indicator

Financial Conditions Indicators (FCI) will provide an assessment of the financial conditions in selected developing country regions, starting with LICs in sub-Saharan Africa. These indicators have the advantage of being computable at high-frequency (monthly) as well as in real time, synthetizing into one single indicator a wide range of financial variables from various sources and of mixed frequencies (for instance, real interest rates, stock and bond market indices, commodity and market prices, volatility indices, exchange rates, residential real price index, debt service ratios and capital flows). The regional FCIs tackle the complexity of increasing financial uncertainty and instability by harnessing the richness of information flows in the era of big data and will provide a useful diagnostic tool for countries whose data inadequacies preclude country-specific analysis.

Related research

External shocks and financial stress post the global financial crisis - UNCTAD financial conditions indicators and financial vulnerabilities in emerging markets

26 March 2019

The objective of this paper is to measure and track financial stress in these six fragile emerging economies in the aftermath of the global financial crisis of 2008, using UNCTAD financial conditions indicators.

The paper argues that there is a need for better tools to measure financial stress in the context of growing instabilities and complexities in international and domestic financial markets.

It then briefly presents the indicators and compares these with relevant existing indices of financial instability. UNCTAD financial conditions indicators have performed well in signalling and capturing the effects of external shocks. Over and above the latest shock arising from appreciations of the dollar and global trade tensions, the indicators picked up the Fed taper tantrum (2013), commodity price shocks (2014), the renminbi shock (2015), and volatility relating to political uncertainty in the United States and the United Kingdom in 2016, with considerable precision, given substantial data limitations.

The publication proceeds with an overview of the occurrence of financial stress episodes in the six selected economies since the onset of the global financial crisis.

It then further discusses the likelihood of a synchronization of such stress episodes across countries, the role played by external drivers of financial instability and countries' capacity for resilience to exogenous shocks.

Workstream 1.3 - Helping LICs and MICs understanding financial conditions - Financial Conditions Indicator

15 July 2021

This paper aims at taking stock of the progress achieved, as of April 2021, in creating synthetic indicators to measure financial conditions in developing countries, in accordance with the specifications of the project “Response and Recovery: Mobilising financial resources for development in the time of Covid-19”. The work presented herein draws on the conceptual framework defined in the literature on “financial stress”, which has mostly focused on advanced economies to date. In line with this literature, our indicators broadly result from a factor analysis on a large series of country-level financial variables. However, we implement numerous methodological innovations in order to better accommodate the specificities of low or middle-income developing countries, such as the “clustering” — or regrouping — of countries with similar financial conditions with a view to undermining the constraints relating to the scarcity or poor quality of financial data. The paper presents some preliminary and provisional results based on a dataset with 843 monthly or quarterly financial variables for 53 developing countries in total, including a world map highlighting five different clusters and the financial conditions indicators per se, for the two largest groups between January 2005 and July 2020, hinting, among other things, the respective magnitudes of the pandemic.

Activities

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Intergovernmental Expert Group on Debt and Development Finance

25 - 27 January 2021

The fourth session of the Intergovernmental Group of Experts on Financing for Development will be held from 25 to 27 January 2021 in room XIX of the Palais des Nations, Geneva, from 11 a.m. to 1 p.m. and 3 to 5 p.m. each day.

At the fourth session, discussions will address the following: Addressing systemic issues – strengthening the coherence and consistency of multilateral financial, investment, trade and development policy

More information on registration, agenda, etc. can be found here: https://unctad.org/meeting/intergovernmental-group-experts-financing-development-fourth-session .