Construction and Analysis of Chinese Macro-Financial Stability Index

Jinsong Wang () and Wanqing Tang ()
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Jinsong Wang: Hangzhou Normal University
Wanqing Tang: Business School of Hohai University

Computational Economics, 2025, vol. 66, issue 2, No 23, 1625-1646

Abstract: Abstract In recent years, the degree of openness and marketization of China’s financial market has continued to deepen, bringing about new types of financial risks that greatly impact the stable operation of China’s financial system. Considering the complex correlation among various financial indicators, this study constructs a macro-financial stability index for China from January 2008 to December 2020, by selecting basic indicators from eight risk areas using a time-varying parameter factor-augmented vector autoregression (TVP-FAVAR) model. The study finds that China’s financial stability index exhibits significant time-varying features, and the constructed index successfully reflects the impact of major events at home and abroad on China’s financial stability, including the outbreak of COVID-19 pandemic. The forecast results indicate that the overall situation of China’s financial stability will be relieved after the impact of the epidemic diminishes in 2021.

Keywords: Financial stability; TVP-FAVAR model; Markov regime switching; Plausibility test; C32; E60; O11 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10614-024-10767-2

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