Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/153761 
Year of Publication: 
2011
Series/Report no.: 
ECB Working Paper No. 1327
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We propose a novel framework to assess financial system risk. Using a dynamic factor framework based on state-space methods, we construct coincident measures (‘thermometers’) and a forward looking indicator for the likelihood of simultaneous failure of a large number of financial intermediaries. The indicators are based on latent macro-financial and credit risk components for a large data set comprising the U.S., the EU-27 area, and the respective rest of the world. Credit risk conditions can significantly and persistently de-couple from macro-financial fundamentals. Such decoupling can serve as an early warning signal for macro-prudential policy.
Subjects: 
credit portfolio models
financial crisis
frailty-correlated defaults
state space methods
systemic risk
JEL: 
G21
C33
Document Type: 
Working Paper

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