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A Composite Indicator of Systemic Stress (CISS) for Colombia

Author

Listed:
  • Wilmar Cabrera

    ()

  • Jorge Hurtado

    ()

  • Miguel Morales

    ()

  • Juan Sebastián Rojas

    ()

Abstract

The most recent global financial crisis (2008-2009) highlighted the importance of systemic risk and promoted academic interest to develop a wide set of warning indicators, which are mechanisms to identify systemically important institutions and global systemic risk indexes. Using the methodology proposed by Holló et al. (2012), along with some considerations from Hakkio & Keeton (2009), this document comprises a Composite Indicator of Systemic Stress (CISS) for Colombia. The index takes into account several dimensions related to financial markets (credit institutions, housing market, external sector, money market and local bond market) and is constructed using portfolio theory, considering the contagion among dimensions. Results suggest the peak of the global financial crisis (September 2008) as the most important episode of systemic risk in Colombia between 2000-2014. Additionally, real activity seems to be adversely affected by an unexpected increase of the systemic risk index.

Suggested Citation

  • Wilmar Cabrera & Jorge Hurtado & Miguel Morales & Juan Sebastián Rojas, 2014. "A Composite Indicator of Systemic Stress (CISS) for Colombia," Temas de Estabilidad Financiera 80, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:temest:80
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    References listed on IDEAS

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    1. Geert Bekaert & Campbell R. Harvey & Angela Ng, 2005. "Market Integration and Contagion," The Journal of Business, University of Chicago Press, vol. 78(1), pages 39-70, January.
    2. Louzis, Dimitrios P. & Vouldis, Angelos T., 2012. "A methodology for constructing a financial systemic stress index: An application to Greece," Economic Modelling, Elsevier, vol. 29(4), pages 1228-1241.
    3. Herman Kamil & José David Pulido & José Luis Torres, 2010. "El IMACO": un índice mensual líder de la actividad económica en Colombia"," BORRADORES DE ECONOMIA 007129, BANCO DE LA REPÚBLICA.
    4. Stock, James H. & Watson, Mark W., 1999. "Forecasting inflation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 293-335, October.
    5. Chiang, Thomas C. & Jeon, Bang Nam & Li, Huimin, 2007. "Dynamic correlation analysis of financial contagion: Evidence from Asian markets," Journal of International Money and Finance, Elsevier, vol. 26(7), pages 1206-1228, November.
    6. Enrique López & Andrés Salamanca, 2009. "El efecto riqueza de la vivienda en Colombia," Coyuntura Económica, Fedesarrollo, December.
    7. Esteban Gómez & Andrés Murcia & Nancy Zamundio, 2011. "Financial Conditions Index: Early and Leading Indicator for Colombia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 29(66), pages 174-220, December.
    8. Kremer, Manfred & Lo Duca, Marco & Holló, Dániel, 2012. "CISS - a composite indicator of systemic stress in the financial system," Working Paper Series 1426, European Central Bank.
    9. Cardarelli, Roberto & Elekdag, Selim & Lall, Subir, 2011. "Financial stress and economic contractions," Journal of Financial Stability, Elsevier, vol. 7(2), pages 78-97, June.
    10. Lehar, Alfred, 2005. "Measuring systemic risk: A risk management approach," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2577-2603, October.
    11. Engle, Robert, 2002. "Dynamic Conditional Correlation: A Simple Class of Multivariate Generalized Autoregressive Conditional Heteroskedasticity Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(3), pages 339-350, July.
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    Cited by:

    1. Laura Pareja Restrepo, 2016. "Financial Interdependence and Contagion: the transmission of financial stress from the United States to Latin America," Documentos CEDE 014235, Universidad de los Andes - CEDE.

    More about this item

    Keywords

    Systemic Risk; Risk Indicators; Financial Stability; Early-Warning-Indicators; Multivariate GARCH.;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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