How Policy Makers Can Better Predict a Downturn – and Prepare
By Claudio Raddatz and Jay Surti
October 3, 2017
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A trading floor in Singapore. Financial conditions provide valuable clues to the economic outlook and can improve the accuracy of forecasts (photo: Caro/Oberhaeuser/Newscom).
The global financial crisis showed that periods of robust growth and seeming calm in financial markets can be followed by a sudden surge in market volatility and an unexpected economic downdraft. That’s why it is so important for policy makers to keep a close watch on so-called financial conditions. These can include everything from bond yields and oil prices to foreign exchange rates and levels of domestic debt. […]