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Using policy intervention to identify financial stress

  • Mark A. Carlson
  • Kurt F. Lewis
  • William R. Nelson

This paper describes the construction of a financial stress index. This stress index differs from other indexes in that it incorporates the co-movement and volatility of financial series as well as the levels of the series. Our index also uses past experience more than others to guide the assessment about which characteristics of the data suggest financial stress exists. In addition to describing the construction of our financial stress index, we spend some time discussing issues relevant to the general construction of stress indexes.

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File URL: http://www.federalreserve.gov/pubs/feds/2012/201202/201202abs.html
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File URL: http://www.federalreserve.gov/pubs/feds/2012/201202/201202pap.pdf
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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2012-02.

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Date of creation: 2012
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Handle: RePEc:fip:fedgfe:2012-02
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  1. John Boyd & Gianni De Nicolò & Elena Loukoianova, 2010. "Banking Crises and Crisis Dating: Theory and Evidence," CESifo Working Paper Series 3134, CESifo Group Munich.
  2. Kevin L. Kliesen & Douglas C. Smith, 2010. "Measuring financial market stress," Economic Synopses, Federal Reserve Bank of St. Louis.
  3. 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.
  4. 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.
  5. Illing, Mark & Liu, Ying, 2006. "Measuring financial stress in a developed country: An application to Canada," Journal of Financial Stability, Elsevier, vol. 2(3), pages 243-265, October.
  6. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, April.
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