Unanticipated shocks could lead to instability, which is reflected in statistically significant changes in distributions of random variables. Changes in the conditional moments of stationary variables are predictable. We provide a framework based on a statistic for the sample generalized variance , which is useful for interrogating real time data and for predicting statistically significant sudden and large shifts in the conditional variance of a vector of correlated macroeconomic and financial variables. It is a test for a market-wide instability. Central banks can incorporate the framework in the policymaking process.
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Volume (Year): 45 (2013)
Issue (Month): 23 (August)
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