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A system-wide financial stress indicator for the Hungarian financial system

Author

Listed:
  • Dániel Holló

    (Magyar Nemzeti Bank (central bank of Hungary))

Abstract

In this study, a system-wide financial stress index (SWFSI) for the Hungarian financial system is developed. The indicator measures the joint stress level of the Hungarian financial system’s main segments: the spot foreign exchange market, the foreign exchange swap market, the secondary market of government bonds, the interbank unsecured money market, the equity market and the banking segment. Stress indices of the six financial system segments are aggregated on the basis of weights which reflect their time-varying cross-correlation structure. As a result, the system-wide financial stress indicator puts greater emphasis on periods in which stress presents permanently in several market segments at the same time. Our results indicate that after February 2005 the default of Lehman Brothers and its global consequences unambiguously acted as a lasting stress event with systemic risk importance from the perspective of the stability of the Hungarian financial system. Finally, the results suggest that the Hungarian financial system’s stress level in the period under review (February 1, 2005–September 16, 2011) was driven mainly by disorders in the banking and the foreign exchange swap market segments.

Suggested Citation

  • Dániel Holló, 2012. "A system-wide financial stress indicator for the Hungarian financial system," MNB Occasional Papers 2012/105, Magyar Nemzeti Bank (Central Bank of Hungary).
    • Handle: RePEc:mnb:opaper:2012/105
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    References listed on IDEAS

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    1. Duprey, Thibaut & Klaus, Benjamin & Peltonen, Tuomas, 2017. "Dating systemic financial stress episodes in the EU countries," Journal of Financial Stability, Elsevier, vol. 32(C), pages 30-56.
    2. Maciej Krzak & Grzegorz Poniatowski & Katarzyna Wasik, 2014. "Measuring financial stress and economic sensitivity in CEE countries," CASE Network Reports 0117, CASE-Center for Social and Economic Research.
    3. Langedijk, Sven & Monokroussos, George & Papanagiotou, Evangelia, 2015. "Benchmarking Liquidity Proxies: Accounting for Dynamics and Frequency Issues," MPRA Paper 61865, University Library of Munich, Germany.
    4. Rémy Charleroy & Michael A. Stemmer, 2014. "An Emerging Market Financial Conditions Index: A VAR Approach," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01110688, HAL.

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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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