Macro-financial vulnerabilities and future financial stress: Assessing systemic risks and predicting systemic events

Arbeitspapier

This paper develops a framework for assessing systemic risks and for predicting (out-of-sample) systemic events, i.e. periods of extreme financial instability with potential real costs. We test the ability of a wide range of stand alone. and composite indicators in predicting systemic events and evaluate them by taking into account policy makers f preferences between false alarms and missing signals. Our results highlight the importance of considering jointly various indicators in a multiva-riate framework. We find that taking into account jointly domestic and global macro-financial vul-nerabilities greatly improves the performance of discrete choice models in forecasting systemic events. Our framework shows a good out-of-sample performance in predicting the last financial cri-sis. Finally, our model would have issued an early warning signal for the United States in 2006Q2, 5 quarters before the emergence of money markets tensions in August 2007.

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• ISBN: 978-952-462-697-2
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BOFIT Discussion Papers ; No. 2/2011

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Central Banks and Their Policies ; Global Outlook ; International Finance Forecasting and Simulation: Models and Applications ; Financial Crises
• Subject: Avaisanat: Early warning indicators ; asset price booms and busts ; financial stress ; macro-prudential policies

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Lo Luca, Marco ; Peltonen, Tuomas
• Event: Veröffentlichung
• (who): Bank of Finland, Institute for Economies in Transition (BOFIT)
• (where): Helsinki
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/212690