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Dating Systemic Financial Stress Episodes in the EU Countries

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  • Thibaut Duprey
  • Benjamin Klaus
  • Tuomas Peltonen

Abstract

This paper introduces a new methodology to date systemic financial stress events in a transparent, objective and reproducible way. The financial cycle is captured by a monthly country-specific financial stress index. Based on a Markov-switching model, high financial stress regimes are identified, and a simple algorithm is used to select those episodes of financial stress that are associated with a substantial negative impact on the real economy. By applying this framework to 27 European Union countries, the paper is a first attempt to provide a chronology of systemic financial stress episodes in addition to the expert-detected events that are currently available.

Suggested Citation

  • Thibaut Duprey & Benjamin Klaus & Tuomas Peltonen, 2016. "Dating Systemic Financial Stress Episodes in the EU Countries," Staff Working Papers 16-11, Bank of Canada.
  • Handle: RePEc:bca:bocawp:16-11
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    More about this item

    Keywords

    Business fluctuations and cycles; Central bank research; Econometric and statistical methods; Economic models; Financial markets; Financial stability; Financial system regulation and policies; Monetary and financial indicators;

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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