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Using Policy Intervention To Identify Financial Stress

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  • Mark Carlson
  • Kurt Lewis
  • William Nelson

Abstract

ABSTRACT This paper describes the construction of a financial stress index (FSI). Our index incorporates the level, volatility and comovement of a variety of financial series, rather than a single dimension of the data. To determine which time periods are ones of notable financial stress and thus the relevant ones for determining the role of the level, volatility and comovement of our financial series, we use actions taken by policymakers. In addition to describing the construction of our FSI, we discuss issues relevant to the general construction of stress indexes such as how an FSI differs from a financial conditions index, the challenges of combining different financial series into a single measure and the role historical experience plays in index construction. Copyright © 2013 John Wiley & Sons, Ltd.

Suggested Citation

  • Mark Carlson & Kurt Lewis & William Nelson, 2014. "Using Policy Intervention To Identify Financial Stress," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 19(1), pages 59-72, January.
  • Handle: RePEc:wly:ijfiec:v:19:y:2014:i:1:p:59-72
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    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
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    6. Jan Hatzius & Peter Hooper & Frederic S. Mishkin & Kermit L. Schoenholtz & Mark W. Watson, 2010. "Financial Conditions Indexes: A Fresh Look after the Financial Crisis," NBER Working Papers 16150, National Bureau of Economic Research, Inc.
    7. Bordo, Michael D. & Schwartz, Anna J., 2000. "Measuring real economic effects of bailouts: historical perspectives on how countries in financial distress have fared with and without bailouts," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 81-167, December.
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