We propose a new top-down approach to measure systemic risk in the financial system. Our framework uses a combination of macroeconomic, financial and rating factors in representative regions of the world. We formulate a mixed-frequency state-space model to estimate macroeconomic factors. To...

A large set of financial variables has only limited power to predict a latent factor common to the year-ahead forecast errors for real Gross Domestic Product (GDP) growth, the unemployment rate, and Consumer Price Index (CPI) inflation for three sets of professional forecasters: the Federal...

Periods of excessive credit growth can imply emergence of systemic financial stress which may result in financial crisis causing severe losses in the real economy. The base indicators of overheatedness in the credit markets are the expansion of the credit-to-GDP ratio and its deviation from its...

Mutually reinforcing dynamics between the market liquidity of financial assets and the funding liquidity risks of financial intermediaries were one of the reasons why asset prices declined so significantly with the onset of the financial crisis in 2007. Based on this observation, I show how an...

The main contribution of this paper is the construction of a cyclical systemic risk indicator from early warning indicators of banking crises (EWIs) used in Finland. Previous research has shown that combining EWIs can enhance their early warning properties. This study evaluates the indicator's...

Financial stability indicators can be grouped into financial stress indicators that reflect heightened spreads and market volatility, and financial vulnerability indicators that reflect credit and asset price imbalances. Based on a panel of euro area countries, we show that both types of...

We propose a toolkit for the assessment of systemic risk buildup in low income countries. We show that, due to non-linearity in the relationship between credit and financial stability, the assessment should be conducted with different tools at different stages of financial development. In...

We present a model of the foreign exchange market with 2 types of investors: cash-constrained carry traders, and short-sighed boundedly rational technical traders. We show that the interactions between both agents explain several of the well-documented puzzles of the exchange rate. In...

We present a factor augmented forecasting model for assessing the financial vulnerability in Korea. Dynamic factor models often extract latent common factors from a large panel of time series data via the method of the principal components (PC). Instead, we employ the partial least squares (PLS)...

A survey of the empirical literature on early warning indicators of banking crises is presented. Descriptive analyses have been published for decades, but cross-national panel data analyses have only been performed since the late 1990s. More recently, the severity of the subprime-Lehman crisis...