Financial Stress Indices and Financial Crises
35 Pages Posted: 11 Apr 2015
Date Written: April 2, 2015
This paper develops a Financial Stress Index (FSI) for 28 OECD countries and examines its relationship to crises using a novel database for financial crises. A stress index measures the current state of stress in the financial system and summarizes it in a single statistic. Our results suggest that even though our FSI is clearly related to the occurrence of crises, there is only a weak relationship between the FSI and the onset of a crisis, notably the onset of a banking crisis. Policymakers should therefore be aware of the limited usefulness of FSIs as an early warning indicator.
Keywords: financial stress index, financial crises, developed countries, early warning indicators
JEL Classification: E5, G10
Suggested Citation: Suggested Citation