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A system-wide financial stress indicator for the Hungarian financial system

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  • Dániel Holló

    ()
    (Magyar Nemzeti Bank (central bank of Hungary))

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    Abstract

    In this study, a system-wide financial stress index (SWFSI) for the Hungarian financial system is developed. The indicator measures the joint stress level of the Hungarian financial system’s main segments: the spot foreign exchange market, the foreign exchange swap market, the secondary market of government bonds, the interbank unsecured money market, the equity market and the banking segment. Stress indices of the six financial system segments are aggregated on the basis of weights which reflect their time-varying cross-correlation structure. As a result, the system-wide financial stress indicator puts greater emphasis on periods in which stress presents permanently in several market segments at the same time. Our results indicate that after February 2005 the default of Lehman Brothers and its global consequences unambiguously acted as a lasting stress event with systemic risk importance from the perspective of the stability of the Hungarian financial system. Finally, the results suggest that the Hungarian financial system’s stress level in the period under review (February 1, 2005–September 16, 2011) was driven mainly by disorders in the banking and the foreign exchange swap market segments.

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    File URL: http://english.mnb.hu/Root/Dokumentumtar/ENMNB/Kiadvanyok/mnben_muhelytanulmanyok/OP105.pdf
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    Bibliographic Info

    Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Occasional Papers with number 2012/105.

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    Length: 42 pages
    Date of creation: 2012
    Date of revision:
    Handle: RePEc:mnb:opaper:2012/105

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    Related research

    Keywords: financial stress; system-wide financial stress index; financial stability; systemic risk;

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    1. Illing, Mark & Liu, Ying, 2006. "Measuring financial stress in a developed country: An application to Canada," Journal of Financial Stability, Elsevier, Elsevier, vol. 2(3), pages 243-265, October.
    2. Judit Páles & Lóránt Varga, 2008. "Trends in the liquidity of Hungarian financial markets – What does the MNB’s new liquidity index show?," MNB Bulletin, Magyar Nemzeti Bank (the central bank of Hungary), Magyar Nemzeti Bank (the central bank of Hungary), vol. 3(1), pages 44-51, April.
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