Asymmetric effects of the international transmission of US financial stress. A threshold-VAR approach
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evgenidis2017 - p. 70
This is exactly what the St. Louis Financial Stress Index (FSI) does. This index is constructed by using principal components analysis, which is a statistical method of extracting factors responsible for the co-movement of a group of variables. Principal components analysis assumes that each of the variables used to construct the FSI captures some aspects of financial stress. Therefore, as the level of financial stress in the economy changes, the variables used to construct the FSI are likely to move together.