'Near-Coincident' Indicators of Systemic Stress

34 Pages Posted: 18 Jun 2013

See all articles by Ivailo Arsov

Ivailo Arsov

International Monetary Fund (IMF)

Elie Canetti

International Monetary Fund (IMF)

Laura E. Kodres

International Monetary Fund (IMF) - Research Department

Srobona Mitra

International Monetary Fund (IMF)

Date Written: May 2013

Abstract

The G-20 Data Gaps Initiative has called for the IMF to develop standard measures of tail risk, which we identify in this paper with systemic risk. To understand the conditions under which tail risk is present, it is first necessary to develop a measure of what constitutes a systemic stress, or tail, event. We develop such a measure and uses it to assess the performance of eleven near-term systemic risk indicators as ‘early’ warning of distress among top financial institutions in the United States and the euro area. Two indicators perform particularly well in both regions, and a couple of other simple indicators do well across a number of criteria. We also find that the sizes of institutions do not necessarily correspond with their contribution to spillover risk. Some practical guidance for policies is provided.

Keywords: International financial system, Financial institutions, Financial risk, Risk management, Coincident Indicator, Early Warning, Financial Stress, Systemic Risk, Tail Risk, financial system, financial crises, financial stability, equity market, financial crisis, systemic crisis, money market, banking crises, global financial crisis, international financial markets, crisis episode, recessions, derivative, financial markets, government bond, treasury bonds, financial services, bond yields, financial instruments, early warning systems, recapitalization, stock market, equity markets, bond, equity derivatives, bonds, government bond yields, crisis management, financial sector

JEL Classification: G01, G17, G21

Suggested Citation

Arsov, Ivailo and Canetti, Elie and Kodres, Laura E. and Mitra, Srobona, 'Near-Coincident' Indicators of Systemic Stress (May 2013). IMF Working Paper No. 13/115. Available at SSRN: https://ssrn.com/abstract=2280622

Ivailo Arsov

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Elie Canetti

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Laura E. Kodres

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-6161 (Phone)
202-623-6339 (Fax)

Srobona Mitra

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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