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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...

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Main Authors: Koong, Seow Shin, Law, Siong Hook
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
http://psasir.upm.edu.my/id/eprint/51256/
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spelling my.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).
institution Universiti Putra Malaysia
building UPM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Putra Malaysia
content_source UPM Institutional Repository
url_provider http://psasir.upm.edu.my/
language English
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.
format Conference or Workshop Item
author Koong, Seow Shin
Law, Siong Hook
spellingShingle Koong, Seow Shin
Law, Siong Hook
Financial stability index and business cycle in Malaysia
author_facet Koong, Seow Shin
Law, Siong Hook
author_sort Koong, Seow Shin
title Financial stability index and business cycle in Malaysia
title_short 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_sort financial stability index and business cycle in malaysia
publisher Faculty of Economics and Management, Universiti Putra Malaysia
publishDate 2012
url http://psasir.upm.edu.my/id/eprint/51256/1/12-14.pdf
http://psasir.upm.edu.my/id/eprint/51256/
_version_ 1643834901345075200
score 13.211869

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