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A Semiparametric Early Warning Model of Financial Stress Events

Ian Christensen () and Fuchun Li

Staff Working Papers from Bank of Canada

Abstract: The authors use the Financial Stress Index created by the International Monetary Fund to predict the likelihood of financial stress events for five developed countries: Canada, France, Germany, the United Kingdom and the United States. They use a semiparametric panel data model with nonparametric specification of the link functions and linear index function. The empirical results show that the semiparametric early warning model captures some well-known financial stress events. For Canada, Germany, the United Kingdom and the United States, the semiparametric model can provide much better out-of-sample predicted probabilities than the logit model for the time period from 2007Q2 to 2010Q2, while for France, the logit model provides better performance for non-financial stress events than the semiparametric model.

Keywords: Econometric and statistical methods; Financial stability (search for similar items in EconPapers)
JEL-codes: G01 G17 C12 C14 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2013
New Economics Papers: this item is included in nep-ban, nep-cba, nep-fmk and nep-for
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:13-13

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