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A New Financial Stress Index for Ukraine

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  • Vladyslav Filatov

    (National Bank of Ukraine)

Abstract

This study improves on the methodology for calculating the financial stress index (FSI) for Ukraine by introducing time-varying correlation into the aggregation of 5 sub-indices (representing the banking sector, households, the corporate sector, government securities, and the foreign exchange (FX) market). The index consists of 20 indicators selected from an initial list of 47 potential candidates. To check the performance of the indicators, sub-indices, and index, we use area under the receiver operating characteristic curve (AUROC) and logit tests. Each sub-index is assigned a weight that reflects the impact of each market on the financial system. This new FSI peaks during periods of crisis that are in line with the consensus of financial experts and performs better than the previous FSI, which makes it more attractive for policy decisions. In particular, the new FSI can be used as a monitoring tool for the macroprudential policy of the National Bank of Ukraine.

Suggested Citation

  • Vladyslav Filatov, 2020. "A New Financial Stress Index for Ukraine," IHEID Working Papers 15-2020, Economics Section, The Graduate Institute of International Studies.
    • Handle: RePEc:gii:giihei:heidwp15-2020
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    References listed on IDEAS

    as
    1. Somnath Chatterjee & Jeremy Chiu & Sinem Hacioglu-Hoke & Thibaut Duprey, 2017. "A financial stress index for the United Kingdom," Bank of England working papers 697, Bank of England.
    2. repec:ecb:ecbwps:20111426 is not listed on IDEAS
    3. 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.
    4. Craig S. Hakkio & William R. Keeton, 2009. "Financial stress: what is it, how can it be measured, and why does it matter?," Economic Review, Federal Reserve Bank of Kansas City, vol. 94(Q II), pages 5-50.
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    6. Lang, Jan Hannes & Izzo, Cosimo & Fahr, Stephan & Ruzicka, Josef, 2019. "Anticipating the bust: a new cyclical systemic risk indicator to assess the likelihood and severity of financial crises," Occasional Paper Series 219, European Central Bank.
    7. Lesia Tyshchenko & Attila Csajbok, 2017. "A Financial Stress Index for Ukraine," Visnyk of the National Bank of Ukraine, National Bank of Ukraine, issue 240, pages 5-13.
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    9. Thibaut Duprey, 2020. "Canadian Financial Stress and Macroeconomic Condition," Canadian Public Policy, University of Toronto Press, vol. 46(S3), pages 236-260, October.
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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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