Abstract
Abstract In this paper, we construct a novel dynamic financial conditions index (DFCI) for China based on accurate online support vector regression (AOSVR), and the constructed DFCI is evaluated on future inflationary pressures. The research results indicate dynamic effect of financial variables on DFCI in time-varying economic and financial environment, verifying the dynamic nature of the weights in our DFCI. On the whole, in our DFCI exchange rate, stock price, and money supply have the push-down effect on DFCI, taking negative dynamic weights. Housing price has the pull-up effect on DFCI, taking positive dynamic weights. The effect of interest rate on DFCI is erratic, taking sign-changed dynamic weights. The Granger causality test results show the superior performance ability of our DFCI compared with the FCI constructed based on SVR.
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