Congratulations to Simone Arrigoni, PhD candidate in the Department of Economics, whose work on financial condition indices has been published in the IMF Economic Review. The paper, co-authored with Alina Bobasu of the European Central Bank and Fabrizio Venditti of the Bank of Italy, is titled "Measuring Financial Conditions using Equal Weights Combination" and appears in Volume 70 of the journal.
The research assesses the merits of financial condition indices (FCIs) built using a straightforward equal weights averaging method, comparing them against more technically demanding approaches such as principal components analysis and time-varying parameter models. Drawing on monthly data from 18 advanced and emerging economies — covering approximately 70% of world GDP — the paper evaluates how well these different indices can capture tail risk in economic activity and predict banking and currency crises. The findings are striking in their simplicity: equal weights averaging produces FCIs that perform at least as well as, and often better than, their more sophisticated counterparts, and outperform two widely used benchmarks — the Chicago Fed National Financial Conditions Index and the Composite Index of Systemic Stress — for both the US and the euro area.
The IMF Economic Review is one of the leading journals in international macroeconomics and finance, and the School extends its warmest congratulations to Simone on this significant publication.