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Financial markets stress indicator for Slovenia (FIMSIS)

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  • Drenkovska, Marija
  • Lenarčič, Črt

Abstract

The Global Financial Crisis (GFC) highlighted the importance of early identification of systemic financial stress and timely macroprudential policy responses. In this context, financial stress indices have become essential tools for monitoring systemic risk in real time. While composite indicators exist for the euro area and several member states, Slovenia has lacked such a measure, primarily due to limited financial market depth and data constraints. This paper introduces the Financial Markets Stress Indicator for Slovenia (FIMSIS), the first composite financial stress indicator developed specifically for the Slovenian financial system. FIMSIS aggregates volatility-based indicators across market segments using three alternative approaches - exponentially weighted moving average (EWMA), multivariate GARCH (BEKK) and principal component analysis (PCA) - allowing for a comparative evaluation of aggregation techniques. The indicator captures both the intensity and systemic dimension of financial stress and is evaluated through robustness checks and regime classification using a Markov-switching model. To assess predictive performance, we apply a Growth-at-Risk framework with Adaptive LASSO and non-crossing constraints. Results confirm FIMSIS's relevance for signalling downside macroeconomic risk.

Suggested Citation

  • Drenkovska, Marija & Lenarčič, Črt, 2025. "Financial markets stress indicator for Slovenia (FIMSIS)," MPRA Paper 125551, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:125551
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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
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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