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Dating systemic financial stress episodes in the EU countries

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  • Duprey, Thibaut
  • Klaus, Benjamin
  • Peltonen, Tuomas

Abstract

This paper introduces a new methodology to date systemic financial stress events in a transparent, objective and reproducible way. The financial cycle is captured by a monthly Country-Level Index of Financial Stress (CLIFS). Based on two Markov-switching and one threshold vector autoregressive model, information from the CLIFS and industrial production are combined to identify those episodes of financial market stress that are associated with a substantial negative impact on the real economy. By applying this framework to 27 European Union countries, the paper is a first attempt to provide a chronology of systemic financial stress episodes as a complement to the expert-detected events that are currently available.

Suggested Citation

  • Duprey, Thibaut & Klaus, Benjamin & Peltonen, Tuomas, 2017. "Dating systemic financial stress episodes in the EU countries," Journal of Financial Stability, Elsevier, vol. 32(C), pages 30-56.
  • Handle: RePEc:eee:finsta:v:32:y:2017:i:c:p:30-56
    DOI: 10.1016/j.jfs.2017.07.004
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    More about this item

    Keywords

    Financial stress index; Markov-switching; Threshold VAR; Systemic financial crises; Crises dating;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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