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Leading indicators of financial stress: New evidence

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  • Vašíček, Bořek
  • Žigraiová, Diana
  • Hoeberichts, Marco
  • Vermeulen, Robert
  • Šmídková, Kateřina
  • de Haan, Jakob

Abstract

This paper examines which variables have predictive power for financial stress in 25 OECD countries, using a recently constructed financial stress index (FSI). First, we employ Bayesian model averaging to identify leading indicators of stress. Next, we use those indicators as explanatory variables in a panel model for all countries and in models at the individual country level. It turns out that panel models can hardly explain FSI dynamics. Although better results are achieved in country models, our findings suggest that (increases in) financial stress is (are) hard to predict out-of-sample despite the reasonably good in-sample performance of the models.

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  • Vašíček, Bořek & Žigraiová, Diana & Hoeberichts, Marco & Vermeulen, Robert & Šmídková, Kateřina & de Haan, Jakob, 2017. "Leading indicators of financial stress: New evidence," Journal of Financial Stability, Elsevier, vol. 28(C), pages 240-257.
  • Handle: RePEc:eee:finsta:v:28:y:2017:i:c:p:240-257
    DOI: 10.1016/j.jfs.2016.05.005
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    Cited by:

    1. Antunes, António & Bonfim, Diana & Monteiro, Nuno & Rodrigues, Paulo M.M., 2018. "Forecasting banking crises with dynamic panel probit models," International Journal of Forecasting, Elsevier, vol. 34(2), pages 249-275.
    2. Zhang, Xun & He, Zongyue & Zhu, Jiali & Li, Jing, 2018. "Quantity of finance and financial crisis: A non-monotonic investigation☆," The North American Journal of Economics and Finance, Elsevier, vol. 44(C), pages 129-139.
    3. Raphaëlle BELLANDO & Oana TOADER, 2017. "An analysis of banks’ weaknesses in the light of stress tests," LEO Working Papers / DR LEO 2479, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    4. Papanikolaou, Nikolaos I., 2018. "To be bailed out or to be left to fail? A dynamic competing risks hazard analysis," Journal of Financial Stability, Elsevier, vol. 34(C), pages 61-85.
    5. Adam, Tomáš & Benecká, Soňa & Matějů, Jakub, 2018. "Financial stress and its non-linear impact on CEE exchange rates," Journal of Financial Stability, Elsevier, vol. 36(C), pages 346-360.
    6. Steel, Mark F. J., 2017. "Model Averaging and its Use in Economics," MPRA Paper 81568, University Library of Munich, Germany.
    7. George Apostolakis & Athanasios P. Papadopoulos, 2019. "Financial Stability, Monetary Stability and Growth: a PVAR Analysis," Open Economies Review, Springer, vol. 30(1), pages 157-178, February.
    8. Phillip J. Monin, 2019. "The OFR Financial Stress Index," Risks, MDPI, Open Access Journal, vol. 7(1), pages 1-21, February.
    9. Bertsatos, Georgios & Sakellaris, Plutarchos & Tsionas, Mike G., 2017. "Did the financial crisis affect the market valuation of large systemic U.S. banks?," Journal of Financial Stability, Elsevier, vol. 32(C), pages 115-123.

    More about this item

    Keywords

    Financial stress index; Bayesian model averaging; Early warning indicators;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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