The dynamic impact mechanism of China's financial conditions on real economy and international crude oil market

Abstract

As financial conditions become more complex and variable, capturing economic patterns becomes harder. The Financial Conditions Index (FCI) has gained traction as a tool to assess the performance of financial markets in nations or regions. This paragraph has created the China FCI using various financial indicators from 2002 to 2022. And with the use of statistical models like DMA-TVP-FAVAR, mixed-frequency Granger causality test, TVP-SV-VAR, and MS-VAR to analyze the relationship between China's financial condition, real economy, and the crude oil market. Different impacts were observed over time and in response to economic shocks, Results show that the fluctuation of international oil price has a negative impact on our financial condition. Therefore, the government should consider the impact of external shock factors such as international crude oil price when formulating financial policies to prevent financial risks.