Assessment of the Republic of Serbia's Systemic Risk and the Likelihood of a Systemic Crisis

Darko Kovacevic
Additional contact information
Darko Kovacevic: National Bank of Serbia

Working Papers Bulletin from National Bank of Serbia

Abstract: The purpose of this paper is to set up the Systemic Stress Indicator (SSI) of the Republic of Serbia’s financial system based on the proposed modification of the systemic stress testing approach that allows for a more appropriate aggregation of the observed indicators within the financial system segment. It also weighs up the advantages of the proposed approach compared to the aggregation methods most frequently used in literature. It proposes a mathematical formulation of the systemic risk level of the financial system and an analytical framework of the early warning system based on an assessment of the likelihood of a systemic crisis occurrence in case of an arbitrary number of regimes. The SSI has demonstrated the ability to correctly identify crisis periods and the systemic risk level of the Republic of Serbia’s financial system. It is suggested that probabilities of a systemic crisis occurrence in a given period are in perfect sync with the dynamics of undetected periods. An optimal period in the case of used indicators and relatively short time series is six months, which may provide timely signals to policy makers to mitigate negative effects on financial and macroeconomic stability.

Keywords: Financial stability; Systemic risk; Financial crisis; Macro-financial linkages; Markov-switching model; early warning model (search for similar items in EconPapers)
JEL-codes: C32 E44 G01 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2021-09
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.nbs.rs/documents-eng/publikacije/wp_bulletin/wp_bulletin_09_21_3.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nsb:bilten:2

Access Statistics for this paper

More papers in Working Papers Bulletin from National Bank of Serbia Contact information at EDIRC.
Bibliographic data for series maintained by Marko Miseljic ().