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Journal of Financial Stability Vol. 28 2017

Leading indicators of financial stress: New evidence

Bořek Vašíček1,2,3; Diana Žigraiová4,2; Marco Hoeberichts5; Robert Vermeulen5; Kateřina Šmídková2; Jakob de Haan

1 European Commission · 2 Czech National Bank · 3 Directorate-General for Economic and Financial Affairs · 4 Charles University · 5 De Nederlandsche Bank

open access

Abstract

This paper examines which variables have predictive power for financial stress in 25 OECD countries, using a recently constructed financial stress index (FSI). First, we employ Bayesian model averaging to identify leading indicators of stress. Next, we use those indicators as explanatory variables in a panel model for all countries and in models at the individual country level. It turns out that panel models can hardly explain FSI dynamics. Although better results are achieved in country models, our findings suggest that (increases in) financial stress is (are) hard to predict out-of-sample despite the reasonably good in-sample performance of the models.

DOI
10.1016/j.jfs.2016.05.005
Volume
28
Pages
240-257
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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