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.
The COVID-19 crisis has exacerbated the many challenges that developing and emerging economies are confronted with. With the background of the War in Ukraine, and in the face of the unwinding of emergency policy measures, such as the G20 debt service suspension initiative, and the tightening of monetary conditions to curb inflation in the North, the global South is bracing itself for new turbulences in international capital markets.
This paper presents a novel conceptual and methodological approach to measuring financial conditions in developing countries drawing on dynamic factor analysis. Our theoretical foundation to construct and interpret the model is based on a Minskian framework of financial instability. Conceptually, instead of analysing financial conditions for individual economies, we cluster various countries with similar financial dynamics into different groups. This has the advantage of alleviating data scarcity and data quality problems.
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.
Policy-oriented analysis for countries to better understand global and regional trends in the light of the COVID-19 pandemic.
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.