IFIS index for the fourth quarter of 2017: Additional mitigation of financial conditions

In the last quarter of 2017, financial conditions continued to ease and the financial conditions index registered the lowest value since index trend monitoring began (March, 2005). A stronger mitigation of financial conditions in the last quarter of 2017 followed after the deceleration of the mitigation trend in the third quarter of 2017.

The mitigation of financial conditions was mostly affected by domestic factors, although foreign financial conditions continued to ease, albeit at a slower rate. When taking into consideration the domestic market, both the expansive monetary politics of the Croatian National Bank (HNB) and the consequential growth of kuna liquidity, which, in turn, stimulated the gradual decrease of lending interest rates, contributed to the mitigation of financial conditions. Additional stimulation of the financial conditions mitigation on the domestic market came from the continuation of positive trends concerning macroeconomic indicators, especially those connected with the state of government finances. The consequence of such trends can be seen in a further decrease in government bond yields and credit default swaps (CDS).

As far as foreign variables are concerned, the largest contribution to a further mitigation of financial conditions came from an increase of stock indices and reduced volatility, which was influenced by geopolitical risks and positive macroeconomic indicators concerning the majority of world’s leading economies.


What is IFIS? 

IFIS is a monthly financial conditions index developed by the Institute of Economics, Zagreb. It provides timely information on the average financial conditions in the economy which can serve as a significant determinant of projections and, consequently, of future economic activity. Financial conditions estimates can be useful for economic activity projections, macroeconomic policy evaluation and financial investment decisions.    

How is IFIS calculated?

Overall financial conditions are influenced by a number of variables. The variables are selected so as to reflect changes in the local and international financial environment, taking into consideration the specific features of the local market. To be able to estimate the developments in financial conditions based on the large clusters of variables, it is necessary to extract data from various parts of the financial system into a simple and easily understandable index. The IFIS index is calculated as the pondered average of variables that represent the fluctuations in the financial system, using the frequently applied method of principal components analysis. IFIS is standardized so that its arithmetic mean equals zero (which is the average index value in the entire observed period), while the standard deviation equals one. Positive values represent harsher financial conditions than the average, and negative ones represent milder financial conditions compared to the average. An increase in the index indicates harshening financial conditions, while a decrease indicates milder financial conditions.

The development of the IFIS index was supported by the EIZ Club, Agrokor, Atlantic and Privredna banka Zagreb.

Attached documents