Atchana Waiquamdee: Brief look at financial market indicators
Opening remarks by Dr Atchana Waiquamdee, Deputy Governor for Monetary Stability, Bank of
Thailand, at the Workshop on Financial Market Indicators, Bangkok, 7 June 2007.
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Good morning, and allow me to welcome you to Bangkok, and to this morning's Workshop on
Financial Market Indicators. The issue we are about to discuss today, namely the use financial
indicators, itself is not a new topic. Especially in more developed financial markets, the use of financial
indicators has been integral to the well-functioning of markets. In those cases, utilizing financial market
indicators in the policy-making process is nothing new.
In many of the emerging markets of Asia, however, this has not been the case. Financial indicators in
the emerging markets have been more difficult to come by, and even much more difficult to interpret -
due largely to gaps in market development. Yet, as the financial markets of Asian economies began to
gather both depth and breadth, more and more financial market indicators are becoming readily
available for policy use. Since the availability of the indicators in emerging markets is rather recent and
the fundamental conditions in these markets are still very dissimilar to those of the more matured
ones, the use of financial market indicators in emerging markets for policy purposes merits much
thought and attention.
So what exactly are we talking about when referring to financial market indicators? Interpreted broadly,
this can include relatively simple indicators, such as interest rates, interest rate spreads, and returns.
They include other measures related to the value of financial or tangible assets like bonds, stocks,
housing, and gold. And of course they also include more sophisticated, data-intensive estimates of
risk, which we hope to discuss today.
For central banks, one of the main questions that arises is whether financial market indicators are
useful in setting monetary policy. And if so, which ones are most useful for central banks, and for what
purpose?
In general, financial market indicators are used by central banks to: (1) gauge market sentiment with
regards to expected changes to policy variables; (2) identify types and sources of shocks to the
economy; and (3) predict future developments in economic activity and inflation. Such predictions of
longer-term inflation are also useful in checking how markets view the credibility of the authorities'
commitments to their final price target.
So financial indicators can be used to double check econometric and judgmental predictions as well as
flag a problem of asset price misalignment, which may need to be addressed by policy. In addition,
financial market indicators have the potential to reflect developments at critical stages of the
transmission process. This is due to the fact that financial markets in general adjust faster than goods
markets, and their prices are timelier and less prone to measurement error.
Today's workshop will give us the chance to discuss these and many other issues. I am that sure my
colleagues around the table would like to share their practical experiences so that we could have a
better understanding of the financial market indicators suitable for emerging markets and how we as
policy makers can best make use of them. Let me now pass the chair to Mr. Eli Remolona, Head of
Economics for Asia and Pacific, BIS.