Identifying Indicators of Systemic Risk
42 Pages Posted: 17 Aug 2019 Last revised: 3 Mar 2021
Date Written: August 14, 2019
We operationalize the definition of systemic risk provided by the IMF, BIS, and FSB and derive a two-stage hierarchical hypothesis test to identify indicators of systemic risk. Applying the framework to a set of candidate variables for 45 countries, we detect two credit-based financial cycle variables that, by and large, pass our test. However, for many other variables, including the Basel III credit-to-GDP gap, we find that elevated systemic risk is signaled by high values in some countries and by low values in others. More generally, our results suggest that, ex ante, systemic risk can be clearly identified only once the turning points of indicators have been observed.
Keywords: Systemic risk, macroprudential regulation, forecasting, growth-at-risk, financial cycles
JEL Classification: E37, E44, G17
Suggested Citation: Suggested Citation