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The financial stability index (5) – Estimated by the Institute of Financial Studies

Ion Stancu, Andrei Tudor Stancu and Iulian Panait ()
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Andrei Tudor Stancu: Norwich Business School, UK

Scientific Papers from Institute of Financial Studies

Abstract: In each issue of the Financial Studies Review, we update and publish the Financial Stability Index (FSI) of our Institute of Financial Studies, which tracks the correlation between economic growth and macroeconomic and financial factors in Romania.We constructeda composite index using a linear combination of financial variables that are considered to have a significant impact on economic activity. These financial variables are weighted with respect to their cumulated two quarters impulse response on GDP growth, as estimated by a VAR model.Developing such a composite index of financial stability or financial stresshas two main utilities:•The analysis of the correlation between financial variables and the real economy placed in the context of different historical episodes of financial crisis. Also, this correlation analysis reveals, in each period, the significant positive or negative contribution of each financial variable to real economic growth. Following this analysis, the FSIcan measure the impact of economic and financial policy measures aimed at mitigating financial crises. The short-term prediction of real economic growth estimated by forecasting the next period evolution of the real economic activity (GDPt+1) using current period GDPtand FSItand economic and financial variables in the FSItcomposition.

Keywords: composite index; financial stress index; economic growth; VAR model; short-term prediction (search for similar items in EconPapers)
JEL-codes: E63 G01 G28 (search for similar items in EconPapers)
Pages: 7 pages
Date: 2018-11
New Economics Papers: this item is included in nep-bec, nep-fdg, nep-mac and nep-tra
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Published in Financial Studies Magazine, November 2018, pages 7-13

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https://revista.isfin.ro/wp-content/uploads/2018/1 ... Index-by-ISF-5-1.pdf Fifth version, 2018 (application/pdf)

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