A system-wide financial stress indicator for the Hungarian financial system

Dániel Holló (hollod@mnb.hu)
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Dániel Holló: Magyar Nemzeti Bank (central bank of Hungary)

No 2012/105, MNB Occasional Papers from Magyar Nemzeti Bank (Central Bank of Hungary)

Abstract: In this study, a system-wide financial stress index (SWFSI) for the Hungarian financial system is developed. The indicator measures the joint stress level of the Hungarian financial system’s main segments: the spot foreign exchange market, the foreign exchange swap market, the secondary market of government bonds, the interbank unsecured money market, the equity market and the banking segment. Stress indices of the six financial system segments are aggregated on the basis of weights which reflect their time-varying cross-correlation structure. As a result, the system-wide financial stress indicator puts greater emphasis on periods in which stress presents permanently in several market segments at the same time. Our results indicate that after February 2005 the default of Lehman Brothers and its global consequences unambiguously acted as a lasting stress event with systemic risk importance from the perspective of the stability of the Hungarian financial system. Finally, the results suggest that the Hungarian financial system’s stress level in the period under review (February 1, 2005–September 16, 2011) was driven mainly by disorders in the banking and the foreign exchange swap market segments.

Keywords: financial stress; system-wide financial stress index; financial stability; systemic risk (search for similar items in EconPapers)
JEL-codes: E44 G01 G10 G20 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2012
New Economics Papers: this item is included in nep-ban and nep-rmg
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Citations: View citations in EconPapers (5)

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