A new method for measuring financial resilience

Yilin Chen and Chentong Sun

Economics Letters, 2024, vol. 242, issue C

Abstract: This paper proposes a new model to measure financial resilience from the perspective of external risk shocks, which composes of three submodels, namely, the dynamic factor model, the time-varying parameter vector autoregression (TVP-VAR) model, and the resilience characteristic measurement model with two dimensions: absorption intensity and absorption duration. At the theoretical level, we simulate and analyze the changing paths of financial resilience under different scenarios. At the empirical level, we apply the model to study the resilience of the UK financial market. The results indicate that the UK financial resilience fluctuations exhibit phased characteristics and there is a clear inverse relationship between absorption intensity and absorption duration. Notably, periods of low resilience often coincide with specific risk events.

Keywords: Financial market; Financial resilience model; Absorption intensity; Absorption duration (search for similar items in EconPapers)
JEL-codes: G00 G01 G10 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003677

DOI: 10.1016/j.econlet.2024.111883

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