Mapping the state of financial stability

Tuomas A. Peltonen and Peter Sarlin ()

No 1382, Working Paper Series from European Central Bank

Abstract: The paper uses the Self-Organizing Map for mapping the state of financial stability and visualizing the sources of systemic risks as well as for predicting systemic financial crises. The Self-Organizing Financial Stability Map (SOFSM) enables a two-dimensional representation of a multidimensional financial stability space that allows disentangling the individual sources impacting on systemic risks. The SOFSM can be used to monitor macro-financial vulnerabilities by locating a country in the financial stability cycle: being it either in the pre-crisis, crisis, post-crisis or tranquil state. In addition, the SOFSM performs better than or equally well as a logit model in classifying in-sample data and predicting out-of-sample the global financial crisis that started in 2007. Model robustness is tested by varying the thresholds of the models, the policymaker's preferences, and the forecasting horizons. JEL Classification: E44, E58, F01, F37, G01

Keywords: macroprudential supervision; prediction; Self-Organizing Map (SOM); Systemic financial crisis; systemic risk; visualization (search for similar items in EconPapers)
Date: 2011-09
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cmp, nep-for and nep-rmg
Note: 355041
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Journal Article: Mapping the state of financial stability (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20111382

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