Measuring Systemic Financial Stress and its Impact on the Macroeconomy
55 Pages Posted: 17 Jan 2021
Date Written: January 15, 2021
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: Suggested Citation