FISS - A Factor-based Index of Systemic Stress in the Financial System

Tibor Szendrei and Katalin Varga ()
Additional contact information
Katalin Varga: Central Bank of Hungary

Russian Journal of Money and Finance, 2020, vol. 79, issue 1, 3-34

Abstract: Tracking and monitoring stress within the financial system is a key component of macroprudential policy. This paper introduces a new measure of contemporaneous stress: the Factor-based Index of Systemic Stress (FISS). The aim of the index is to capture the common components of data describing the financial system. This new index is calculated with a dynamic Bayesian factor model methodology, which compresses the available high frequency and high dimensional dataset into stochastic trends. Aggregating the extracted four factors into a single index is possible in a multitude of ways, but averaging yields satisfactory results. The contribution of this paper is the usage of the dynamic Bayesian framework to measure financial stress, as well as producing the measure in a timely manner without the need for deep option markets. Applied to Hungarian data the FISS is a key element of the macroprudential toolkit.

Keywords: systemic stress; financial stress index; Dynamic Bayesian Factor Model; financial system; macroprudential toolkit (search for similar items in EconPapers)
JEL-codes: E44 G01 G10 G20 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations:

Downloads: (external link)
https://rjmf.econs.online/upload/iblock/4ae/Factor ... Financial-System.pdf

Related works:
Working Paper: FISS - A Factor Based Index of Systemic Stress in the Financial System (2017)
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:bkr:journl:v:79:y:2020:i:1:p:3-34

DOI: 10.31477/rjmf.202001.03

Access Statistics for this article

Russian Journal of Money and Finance is currently edited by Ksenia Yudaeva

More articles in Russian Journal of Money and Finance from Bank of Russia Contact information at EDIRC.
Bibliographic data for series maintained by Olga Kuvshinova ().