Financial stress and economic contractions
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Connects with: @hakkio2009 @illing2006
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cardarelli2011 - p. 79
Finland
cardarelli2011 - p. 79
France
cardarelli2011 - p. 79
Germany
cardarelli2011 - p. 79
Italy
cardarelli2011 - p. 80
To overcome these drawbacks, this paper identifies episodes of financial stress as extreme values of a composite variable the FSI – built using market-based indicators in real time and high frequency
cardarelli2011 - p. 80
The FSI for each country is constructed as a variance-weighted average of three subindices which can be thought of being associated with the banking, securities, and foreign exchange markets, with an increase of the FSI indicating elevated financial stress.
cardarelli2011 - p. 95
Episodes of financial stress are identified when the index is one standard deviation above its trend. Episodes that are only two quarters apart are considered one episode. To classify if an episode of financial stress is either due to banking, securities, or foreign exchange stress, we look at the change in the FSI from the quarter prior to the start of the episode to the maximum value of the FSI within the episode. I