1. MACROECONOMIC PERSPECTIVE ON CONSTRUCTING FINANCIAL VULNERABILITY INDICATOR IN CHINA.
- Author
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Tai-Hock KUEK, Chin-Hong PUAH, ARIP, M. Affendy, and HABIBULLAH, Muzafar Shah
- Subjects
ECONOMIC indicators ,ECONOMIC change ,ECONOMIC activity ,FINANCIAL markets ,FINANCIAL crises - Abstract
This paper attempts to develop a financial vulnerability indicator for China as a barometer for the state of financial vulnerability in the Chinese financial market, possibly for real-time application. Twelve variables from different sectors are utilised to extract a common vulnerability component using a dynamic approximate factor model. Through the implementation of a Markovswitching Bayesian vector autoregression (MSBVAR) model, the empirical results indicate that a high-vulnerability episode is associated with substantially lower economic activity, but a low-vulnerability episode does not incur substantial changes in economic activity. Notably, the constructed indicator can serve as a real-time early warning system to signify vulnerabilities in the Chinese financial market. [ABSTRACT FROM AUTHOR]
- Published
- 2021
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