Leading Indicators of Financial Stress: New Evidence

34 Pages Posted: 11 Jun 2015

See all articles by Borek Vasicek

Borek Vasicek

Czech National Bank (CNB); European Union - Directorate General for Economic and Financial Affairs (DG ECFIN)

Diana Zigraiova

Czech National Bank (CNB); Charles University in Prague

Marco Hoeberichts

De Nederlandsche Bank - Research Department

Robert Vermeulen

De Nederlandsche Bank

Katerina Smidkova

Czech National Bank (Deceased); Charles University - Economics Department (Deceased)

Jakob de Haan

University of Groningen - Faculty of Economics and Business; De Nederlandsche Bank; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: June 9, 2015

Abstract

This paper examines which variables have predictive power for financial stress in a sample of 25 OECD countries, using a recently constructed Financial Stress Index (FSI). First, we employ Bayesian model averaging to identify leading indicators of our FSI. Next, we use those indicators as explanatory variables in a panel model for all our countries and in models at the individual country level. It turns out that panel models can hardly explain FSI dynamics. Although better results are achieved in models estimated at the country level, our findings suggest that (increases in) financial stress is (are) hard to predict out-of-sample.

Keywords: financial stress index, Bayesian model averaging, early warning indicators

JEL Classification: E5, G10

Suggested Citation

Vasicek, Borek and Zigraiova, Diana and Hoeberichts, Marco M. and Vermeulen, Robert and Smidkova, Katerina and de Haan, Jakob, Leading Indicators of Financial Stress: New Evidence (June 9, 2015). De Nederlandsche Bank Working Paper No. 476. Available at SSRN: https://ssrn.com/abstract=2616628 or http://dx.doi.org/10.2139/ssrn.2616628

Borek Vasicek

Czech National Bank (CNB) ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

European Union - Directorate General for Economic and Financial Affairs (DG ECFIN) ( email )

BU-1 05/190
Brussels, Bruxelles B-1049
Belgium

Diana Zigraiova

Czech National Bank (CNB) ( email )

Na Prikope 28
CZ-11503 Praha 1
Czech Republic

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Marco M. Hoeberichts

De Nederlandsche Bank - Research Department ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands
+31-20-524 2890 (Phone)
+31-20-524 2529 (Fax)

Robert Vermeulen

De Nederlandsche Bank ( email )

P.O. Box 98
1000 AB Amsterdam
Netherlands

Katerina Smidkova

Czech National Bank (Deceased)

Charles University - Economics Department (Deceased)

Jakob de Haan (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

PO Box 800
Groningen, 9700 AV
Netherlands
+31 0 50 3633706 (Fax)

De Nederlandsche Bank ( email )

P.O. Box 98
Amsterdam, 1000 AB
Netherlands

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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