Diagnosing the Financial System: Financial Conditions and Financial Stress
We approach the task of monitoring financial stability within a framework that balances the costs and benefits of identifying future crisis-like conditions based on past U.S. financial crises. Our results indicate that the National Financial Conditions Index (NFCI) produced by the Federal Reserve Bank of Chicago is a highly predictive and robust indicator of financial stress at leading horizons of up to one year, with measures of leverage playing a crucial role in signaling financial imbalances. At longer forecast horizons, we propose an alternative sub-index of the NFCI that captures the relationship between non-financial leverage, financial stress, and economic activity.
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Volume (Year): 8 (2012)
Issue (Month): 2 (June)
Pages: 191-239
| Handle: | RePEc:ijc:ijcjou:y:2012:q:2:a:6 |
| Contact details of provider: | Web page: http://www.ijcb.org/
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References listed on IDEAS
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