Functional Systemic Risk, Complementarities and Early Warnings

Cañón Salazar Carlos Iván, Gallón Santiago and Olivar Santiago

No 2016-12, Working Papers from Banco de México

Abstract: This paper proposes a systemic risk index based on Functional Data Analysis (FDA), overcoming salient shortcomings of standard methodologies related to data usage, data sparseness, and high dimensionality issues. Using Mexican data, a set of systemic risk indexes are constructed and we show that the proposed functional index captures new information, and through simulations, that it outperforms previous methods when the indicators become increasingly nonlinear. Finally, we show which indexes serve as complements, and which are the best early warning indicators.

Keywords: Systemic Risk; Functional Data Analysis; Dimensionality Reduction; Signal Informativeness (search for similar items in EconPapers)
JEL-codes: G01 G10 G17 G18 (search for similar items in EconPapers)
Date: 2016-07
New Economics Papers: this item is included in nep-cba, nep-cse and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:bdm:wpaper:2016-12

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