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Evaluating the Information Value for Measures of Systemic Conditions

Author

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  • John Dooley
  • Dieter Gramlich
  • Mikhail V. Oet
  • Stephen J. Ong
  • Peter Sarlin

Abstract

Timely identification of coincident systemic conditions and forward-looking capacity to anticipate adverse developments are critical for macroprudential policy. Despite clear recognition of these factors in literature, an evaluation methodology and empirical tests for the information value of coincident measures are lacking. This paper provides a twofold contribution to the literature: (i) a general-purpose evaluation framework for assessing information value for measures of systemic conditions, and (ii) an empirical assessment of the information value for several alternative measures of US systemic conditions. We find substantial differences among the measures, of which the Cleveland Financial Stress Index shows best-in-class identification performance. In terms of forecasting performance, Kamakura?s Troubled Company Index, Cleveland Financial Stress Index, and Goldman Sachs Financial Conditions Index show moderately stable usefulness metrics over time.

Suggested Citation

  • John Dooley & Dieter Gramlich & Mikhail V. Oet & Stephen J. Ong & Peter Sarlin, 2015. "Evaluating the Information Value for Measures of Systemic Conditions," Working Papers (Old Series) 1513, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:1513
    DOI: 10.26509/frbc-wp-201513
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    Cited by:

    1. Mikhail V. Oet & John M. Dooley & Stephen J. Ong, 2015. "The Financial Stress Index: Identification of Systemic Risk Conditions," Risks, MDPI, vol. 3(3), pages 1-25, September.
    2. Mikhail V. Oet & John M. Dooley & Amanda C. Janosko & Dieter Gramlich & Stephen J. Ong, 2015. "Supervising System Stress in Multiple Markets," Risks, MDPI, vol. 3(3), pages 1-25, September.

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    More about this item

    Keywords

    Information value; Systemic conditions; Coincident measures; Early warning; Macroprudential policy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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