A Vulnerability Spillover Index for the Indian Financial System

Indrani Manna

A chapter in Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics, 2021, vol. 28, pp 129-141 from Emerald Group Publishing Limited

Abstract: This chapter proposes a measure of systemic default interconnectedness between banks, non-banks, housing finance companies in India and globally systemically important banks based on variance decompositions associated with a multiple variable vector autoregression of probability of default of the institutions. We call it the “vulnerability spillover index” (VSI). The vulnerability indices capture all the major macro and financial stress events in the Indian and global economy explaining the interconnections between sectors and underlying reasons for spillovers and potential for a systemic crisis. Thresholds of VSI are calculated which may enable prediction of financial stress events.

Keywords: Systemic risk; interconnectedness; vulnerability indicator; spillovers; probability of default; exposure index (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:isetez:s1571-038620210000028007

DOI: 10.1108/S1571-038620210000028007

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