Mapping heat in the U.S. financial system

David Aikman (), Michael Kiley, Seung Jung Lee, Michael G. Palumbo and Missaka Warusawitharana

Journal of Banking & Finance, 2017, vol. 81, issue C, 36-64

Abstract: We provide a framework for assessing the build-up of vulnerabilities to the U.S. financial system. We collect forty-six indicators of financial and balance-sheet conditions, cutting across measures of valuation pressures, nonfinancial borrowing, and financial-sector health. We place the data in economic categories, track their evolution, and develop an algorithmic approach to monitoring vulnerabilities that can complement the more judgmental approach of most official-sector organizations. Our approach picks up rising imbalances in the U.S. financial system through the mid-2000s, presaging the financial crisis. We also highlight several statistical properties of our approach: most importantly, our summary measures of system-wide vulnerabilities lead the credit-to-GDP gap (a key gauge in Basel III and related research) by a year or more. Thus, our framework may provide useful information for setting macroprudential policy tools such as the countercyclical capital buffer.

Keywords: Financial vulnerabilities; Financial crisis; Financial stability; Systemic risk; Early warning system; Heat maps; Data visualization; Macroprudential policy; Countercyclical capital buffers (search for similar items in EconPapers)
JEL-codes: G01 G12 G21 G23 G28 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (46)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426617301012
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Mapping Heat in the U.S. Financial System (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:81:y:2017:i:c:p:36-64

DOI: 10.1016/j.jbankfin.2017.04.013

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().