The relationship between a unified financial condition index and the most actively traded USD based foreign currency pairs

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dc.contributor.authorGurrib, Ikhlaas
dc.date.accessioned2021-02-03T11:37:05Z
dc.date.available2021-02-03T11:37:05Z
dc.date.copyright© 2020
dc.date.issued2020-10
dc.descriptionThis article is not available at CUD collection. The version of scholarly record of this article is published in Institutions and Economies (2020), available online at: https://ijie.um.edu.my/article/view/26892en_US
dc.description.abstractThis study proposes a unified financial condition index centred around the most popular financial conditions indices used in the US and tests its relationship with the most actively traded USD based foreign currency pairs, namely the British pounds, Japanese yen, Australian dollar, Canadian dollar, Chinese yuan and the Indian rupee. Using weekly data over 1993-2018, this paper proposes a Unified Financial Condition Index (UFCI) under a principal component analysis framework. The index captures 78% of the variability inherent in St Louis Federal Reserve Financial Stress Index, the Chicago Fed National Financial Condition Index and the Adjusted National Financial Condition Index. Significant p-value of UFCI, homoscedasticity and a relatively stable root mean squared errors were observed only for EUR/USD. Mixed findings, found as lags, were increased, suggesting a weak relationship between UFCI and foreign currencies. The UFCI forecasting model is compared with the VIX (volatility index) based model, and also a random walk model. Although the UFCI model was superior only for the Canadian dollar, Chinese yuan and Indian rupee after considering heteroscedasticity in errors, results were sensitive to the number of lags and insignificant p-values. © 2020, Faculty of Economics and Administration. All rights reserved.en_US
dc.identifier.citationGurrib, I. (2020). The relationship between a unified financial condition index and the most actively traded USD based foreign currency pairs. Institutions and Economies, 12(4), 93-127. https://ijie.um.edu.my/article/view/26892en_US
dc.identifier.issn22321640
dc.identifier.urihttps://ijie.um.edu.my/article/view/26892
dc.identifier.urihttp://hdl.handle.net/20.500.12519/320
dc.language.isoenen_US
dc.publisherFaculty of Economics and Administrationen_US
dc.relationAuthor Affiliation : Gurrib, I., School of Graduate Studies, Canadian University Dubai, United Arab Emirates
dc.relation.ispartofseriesInstitutions and Economies;Volume 12, Issue 4
dc.rightsPermission to reuse abstract has been secured from Faculty of Economics and Administration
dc.rights.holderCopyright : © 2020, Faculty of Economics and Administration. All rights reserved.
dc.subjectExchange ratesen_US
dc.subjectFinancial conditionsen_US
dc.subjectForecastsen_US
dc.subjectPrincipal component analysisen_US
dc.titleThe relationship between a unified financial condition index and the most actively traded USD based foreign currency pairsen_US
dc.typeArticleen_US

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