Taiwan’s Financial Conditions Index And Its Relation With The Housing Price
Date Issued
2015
Date
2015
Author(s)
Huang, Chih-Chia
Abstract
Since the eruption of Great Recession in 2008, it has highlighted the housing price’s profound effect on economic and financial development. The main purpose of this paper is to develop an approach for constructing Taiwan’s financial conditions index (FCI), to seize the gross demand and its relation with the housing price. At first, employing economic theory and thesis, we obtain six common factors to capture the price and quantity fluctuations in the stock market, the money market and the foreign exchange market. Secondly, we construct the FCI based on these factors, with their weights determined by the method of Deutsche Bank, and find the resulting signs of these weights are consistent with the implications of macroeconomic theories. Finally, the results of Granger causality tests and the pseudo out-of-sample experiments suggest that the FCI developed in this paper can lead the dynamics of housing price. This property may be helpful for government to take measures to prevent the destruction from soaring housing price.
Subjects
Financial Conditions Index
Linear Regression model
Vector Autoregression model
Granger Causality
out-of-sample forecasting
Type
thesis
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