Constructing a financial fragility index for emerging countries


SENSOY A., OZTURK K., Hacihasanoglu E.

FINANCE RESEARCH LETTERS, vol.11, no.4, pp.410-419, 2014 (Journal Indexed in SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 11 Issue: 4
  • Publication Date: 2014
  • Doi Number: 10.1016/j.frl.2014.07.007
  • Title of Journal : FINANCE RESEARCH LETTERS
  • Page Numbers: pp.410-419

Abstract

This article proposes a novel framework to construct a financial fragility index (FIX) of an emerging country from five main variables by combining the methods of principal component analysis and dynamic conditional correlations. The main contribution of the FIX is the time-varying weighting scheme of the variables and it is demonstrated for a leading emerging market, Turkey. A comparison with the classic principal component approach on forecasting economic activity-expectations and a policy making application are presented. (C) 2014 Elsevier Inc. All rights reserved.