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An indicator of macro-financial stress for Italy

Arianna Miglietta () and Fabrizio Venditti ()
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Arianna Miglietta: Bank of Italy

No 497, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We develop a measure of systemic stress for the Italian financial markets (FCI-IT) that aggregates information from five major segments of the whole financial system, i.e. the money market, the bond market, the equity market, the foreign exchange market and the market for stocks of financial intermediaries. The index builds on the methodology of the Composite Indicator of Systemic Stress (CISS) developed by Hollò, Kremer and Lo Duca (2012) for the euro area. We set up a simple TVAR model to verify whether the proposed measure is able to provide significant and consistent information about the evolution of macroeconomic variables when financial conditions change. The indicator’s performance is evaluated against two alternative metrics publicly available (e.g. the euro-area CISS and the Italian CLIFS). Our results show that FCI-IT behaves quite similarly to the other indexes considered in signalling high-stress periods, but it also identifies episodes of financial distress for the Italian economy which are disregarded by the other two. During periods of high stress, the effects of financial shocks on gross domestic product are significant.

Keywords: Financial stability; systemic risk; financial condition index (search for similar items in EconPapers)
JEL-codes: G01 G10 G20 E44 (search for similar items in EconPapers)
Date: 2019-04
New Economics Papers: this item is included in nep-eec and nep-mac
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