Monday, April 18, 2011

New Chicago Fed Financial Conditions Index

The Chicago Federal Reserve Bank recently released a new index called the National Financial Conditions Index (NFCI), which "provides a comprehensive weekly update on U.S. financial conditions in money markets, debt and equity markets, and the traditional and “shadow” banking systems.  The NFCI is a weighted average of a large number of variables (100 measures of financial activity(pdf)) each expressed relative to their sample averages and scaled by their sample standard deviations.  The NFCI is constructed to have an average value of zero and a standard deviation of one over a sample period extending back to 1973.  Positive values of the NFCI indicate financial conditions that are tighter than on average, while negative values indicate financial conditions that are looser than on average.

MP: Every Wednesday, the Chicago Fed will update the NFCI based on financial data through the previous week.  The chart above displays the NFCI on a weekly basis back to January of 2005, and shows that the index in the last several months has fallen back to levels not seen since the summer of 2007, well before the beginning of the recession.     


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