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Financial Stress Indexes for the Czech Republic and Hungary

  • Milan Šimáček
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    Financial stress indexes provide a new tool for regulatory and public institutions, which participate in the supervision of financial markets and in the monitoring of the development of risk in financial markets. Our paper introduced a number of methods of building the financial stress index for the Czech Republic and Hungary. We have developed our indices based on the variables representing the level of financial stress by the movement of market prices of assets, which provides a higher frequency to the measurement of financial stress in the main sectors of financial system, ie. banking, money market, currency, fixed income and equity sectors. We have than evaluated our indices by the effectiveness to identify periods of increased financial stress based on the deviation by one standard deviation of the value of the index from the median value. Comparing periods identified with this method with historical periods of increased financial stress, we came to the conclusion that my financial stress index for each country successfully identifies the development and level of stress in financial system.

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    Article provided by University of Economics, Prague in its journal Politická ekonomie.

    Volume (Year): 2012 (2012)
    Issue (Month): 5 ()
    Pages: 614-634

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    Handle: RePEc:prg:jnlpol:v:2012:y:2012:i:5:id:866:p:614-634
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    1. Reinhart, Carmen, 2009. "The Second Great Contraction," MPRA Paper 21485, University Library of Munich, Germany.
    2. Petr Jakubík & Petr Teplý, 2011. "The JT Index as an Indicator of Financial Stability of Corporate Sector," Prague Economic Papers, University of Economics, Prague, vol. 2011(2), pages 157-176.
    3. Illing, Mark & Liu, Ying, 2006. "Measuring financial stress in a developed country: An application to Canada," Journal of Financial Stability, Elsevier, vol. 2(3), pages 243-265, October.
    4. Asli Demirgüç-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
    5. Viktor Kotlán, 1999. "Are financial indicators capable of predicting economic activity?," Politická ekonomie, University of Economics, Prague, vol. 1999(5).
    6. Holló, Dániel & Kremer, Manfred & Lo Duca, Marco, 2012. "CISS - a composite indicator of systemic stress in the financial system," Working Paper Series 1426, European Central Bank.
    7. Elke Hanschel & Pierre Monnin, 2005. "Measuring and forecasting stress in the banking sector: evidence from Switzerland," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 431-49 Bank for International Settlements.
    8. Tai-kuang Ho, 2004. "How Useful are Regime-Switching Models in Banking Crises Identification?," Econometric Society 2004 Far Eastern Meetings 764, Econometric Society.
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