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Financial stress index: a lens for supervising the financial system

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  • Timothy Bianco
  • Dieter Gramlich
  • Mikhail V. Oet
  • Stephen J. Ong

Abstract

This paper develops a new financial stress measure (Cleveland Financial Stress Index, CFSI) that considers the supervisory objective of identifying risks to the stability of the financial system. The index provides a continuous signal of financial stress and broad coverage of the areas that could indicate it. The construction methodology uses daily public market data collected from different sectors of financial markets. A unique feature of the index is that it employs a dynamic weighting method that captures the changing relative importance of the different sectors of the financial system. This study shows how the index can be applied to monitoring and analyzing financial system conditions.

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File URL: http://www.clevelandfed.org/research/workpaper/2012/wp1237.pdf
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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 1237.

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Date of creation: 2012
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Handle: RePEc:fip:fedcwp:1237

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Keywords: Financial markets ; Time-series analysis ; Interest rates ; Business cycles ; Econometric models;

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References

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