This paper constructs a broad measure of financial conditions for the United States, Japan, the Euro
Area and the United Kingdom, by extending monetary condition indices which are traditionally used to
gauge the impact of monetary policy on the economy. In addition to changes in the exchange rate and short
and long interest rates, the change in credit availability, corporate bond spreads and household wealth are
taken into account to gauge the evolution of financial conditions. Since the onset of the financial crisis,
financial conditions have tightened by an unprecedented degree in the four countries/regions and this is
evaluated to exert a major drag on activity.
