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Leading indicators of financial stress: New evidence

Bořek Vašíček (), Diana Zigraiova (), Marco Hoeberichts (), Robert Vermeulen, Katerina Smidkova and Jakob de Haan ()

Journal of Financial Stability, 2017, vol. 28, issue C, 240-257

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.

Keywords: Financial stress index; Bayesian model averaging; Early warning indicators (search for similar items in EconPapers)
JEL-codes: E5 G10 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:28:y:2017:i:c:p:240-257

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