Measuring Systemic Financial Stress and its Impact on the Macroeconomy

55 Pages Posted: 17 Jan 2021

See all articles by Sulkhan Chavleishvili

Sulkhan Chavleishvili

European Central Bank (ECB)

Manfred Kremer

European Central Bank (ECB)

Date Written: January 15, 2021

Abstract

This paper proposes a general statistical framework for systemic financial stress indexes. Several existing index designs can be represented as special cases. We introduce a daily variant of the ECB’s CISS for the euro area and the US. The CISS aggregates a representative set of stress indicators using their time-varying cross-correlations as systemic weights, like portfolio risk is computed from the risk characteristics of individual assets. A bootstrap algorithm delivers test statistics. A linear VAR shows that the Great Recession is mainly caused by CISS shocks, while their contribution to the COVID-19 crisis appears limited. A quantile VAR suggests particularly strong real effects of financial stress in the worst states of the economy.

Keywords: Financial crisis; Financial stress index; Macro-financial linkages; Quantile vector autoregression; Systemic risk

JEL Classification: C14, C31, C43, C53, E44, G01

Suggested Citation

Chavleishvili, Sulkhan and Kremer, Manfred, Measuring Systemic Financial Stress and its Impact on the Macroeconomy (January 15, 2021). Available at SSRN: https://ssrn.com/abstract=3766928 or http://dx.doi.org/10.2139/ssrn.3766928

Sulkhan Chavleishvili

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Manfred Kremer (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 7065 (Phone)

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