Financial stress and economic dynamics: an application to France
In this paper, we develop a financial stress index for France that can be used as a real-time composite indicator for the state of financial stability in France. We take 17 financial variables from different market segments and extract a common stress component using a dynamic approximate factor model. We estimate the model with a combined maximum-likelihood and Expectation-Maximization algorithm allowing for mixed frequencies and an arbitrary pattern of missing data. Using a Markov-Switching Bayesian VAR model, we show that an episode of high financial stress is associated with significantly lower economic activity, whereas movements in the index in a low-stress regime do not incur significant changes in economic activity. Therefore, this index can be used in real time as an early warning signal of systemic risk in the French financial sector
|Date of creation:||Mar 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 431 8814-1
Fax: +49 431 85853
Web page: http://www.ifw-kiel.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Susanto Basu & Brent Bundick, 2011.
"Uncertainty Shocks in a Model of Effective Demand,"
Boston College Working Papers in Economics
774, Boston College Department of Economics, revised 01 Nov 2015.
- Susanto Basu & Brent Bundick, 2012. "Uncertainty shocks in a model of effective demand," Working Papers 12-15, Federal Reserve Bank of Boston.
- Susanto Basu & Brent Bundick, 2012. "Uncertainty Shocks in a Model of Effective Demand," NBER Working Papers 18420, National Bureau of Economic Research, Inc.
- Bundick, Brent & Basu, Susanto, 2014. "Uncertainty shocks in a model of effective demand," Research Working Paper RWP 14-15, Federal Reserve Bank of Kansas City.
- Bańbura, Marta & Modugno, Michele, 2010.
"Maximum likelihood estimation of factor models on data sets with arbitrary pattern of missing data,"
Working Paper Series
1189, European Central Bank.
- Marta Bańbura & Michele Modugno, 2014. "Maximum Likelihood Estimation Of Factor Models On Datasets With Arbitrary Pattern Of Missing Data," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(1), pages 133-160, 01.
- Sims, Christopher A. & Waggoner, Daniel F. & Zha, Tao, 2008.
"Methods for inference in large multiple-equation Markov-switching models,"
Journal of Econometrics,
Elsevier, vol. 146(2), pages 255-274, October.
- Christopher A. Sims & Daniel F. Waggoner & Tao Zha, 2006. "Methods for inference in large multiple-equation Markov-switching models," FRB Atlanta Working Paper 2006-22, Federal Reserve Bank of Atlanta.
- Scott Brave & R. Andrew Butters, 2012. "Diagnosing the Financial System: Financial Conditions and Financial Stress," International Journal of Central Banking, International Journal of Central Banking, vol. 8(2), pages 191-239, June.
- Björn van Roye, 2011. "Financial stress and economic activity in Germany and the Euro Area," Kiel Working Papers 1743, Kiel Institute for the World Economy.
- Nicholas Bloom, 2009.
"The Impact of Uncertainty Shocks,"
Econometric Society, vol. 77(3), pages 623-685, 05.
- Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998.
"The Financial Accelerator in a Quantitative Business Cycle Framework,"
NBER Working Papers
6455, National Bureau of Economic Research, Inc.
- Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
- Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
- 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.
- Kliesen, Kevin L. & Owyang, Michael T. & Vermann, E. Katarina, 2012. "Disentangling diverse measures: a survey of financial stress indexes," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 369-398.
- Simon Gilchrist & Egon Zakrajšek, 2011.
"Credit Spreads and Business Cycle Fluctuations,"
NBER Working Papers
17021, National Bureau of Economic Research, Inc.
- Cardarelli, Roberto & Elekdag, Selim & Lall, Subir, 2011. "Financial stress and economic contractions," Journal of Financial Stability, Elsevier, vol. 7(2), pages 78-97, June.
- Robert Tetlow & Kirstin Hubrich, 2013.
"Financial stress and economic dynamics: The transmission of crises,"
2013 Meeting Papers
571, Society for Economic Dynamics.
- Kirstin Hubrich & Robert J. Tetlow, 2012. "Financial stress and economic dynamics: the transmission of crises," Finance and Economics Discussion Series 2012-82, Board of Governors of the Federal Reserve System (U.S.).
- Hubrich, Kirstin & Tetlow, Robert J., 2014. "Financial stress and economic dynamics: the transmission of crises," Working Paper Series 1728, European Central Bank.
- Claudio Borio, 2011. "Central banking post-crisis: What compass for uncharted waters?," BIS Working Papers 353, Bank for International Settlements.
- Holló, Dániel & Kremer, Manfred & Lo Duca, Marco, 2012. "CISS - a composite indicator of systemic stress in the financial system," Working Paper Series 1426, European Central Bank.
- 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, issue Q II, pages 5-50.
When requesting a correction, please mention this item's handle: RePEc:kie:kieliw:1834. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dieter Stribny)The email address of this maintainer does not seem to be valid anymore. Please ask Dieter Stribny to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.