Vulnerable Growth in the Euro Area : Measuring the Financial Conditions

This paper examines which measures of nancial conditions are informative about the tailrisks to output growth in the euro area. The Composite Indicator of Systemic Stress (CISS)is more informative than indicators focusing on narrower segments of nancial markets ortheir simple aggregation in the principal component. Conditionally on the CISS one canreproduce for the euro area the stylized facts known from the US, such as the strong negativecorrelation between conditional mean and conditional variance that generates stableupper quantiles and volatile lower quantiles of output growth