Measuring financial stress in transition economies

Emrah Çevik, Selahattin Dibooglu and Ali Kutan

Journal of Financial Stability, 2013, vol. 9, issue 4, 597-611

Abstract: This study constructs a financial stress index for Bulgaria, the Czech Republic, Hungary, Poland, and Russia and examines the relationship between financial stress and economic activity. The financial stress index incorporates banking sector fragility, time varying stock market return volatility, sovereign debt spreads, an exchange market pressure index, and trade credit. These variables seem to capture key aspects of financial stress in sample countries as the index peaks at known financial crises in these countries. We then examine the relationship between financial stress and economic activity. Impulse response functions based on bivariate VARs show a significant relationship between financial stress and some measures of economic activity. Overall, the constructed financial stress index provides valuable information on the state of the economy and economic activity.

Keywords: Financial crises; Financial pressure; Economic indicators; Business cycles; Transition economies (search for similar items in EconPapers)
JEL-codes: C43 E32 G01 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (60)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:9:y:2013:i:4:p:597-611

DOI: 10.1016/j.jfs.2012.10.001

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