Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/189892
Authors: 
Szendrei, Tibor
Varga, Katalin
Year of Publication: 
2017
Series/Report no.: 
MNB Working Papers 2017/9
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 4 factors into a single index is possible in a multitude of ways but averaging yields satisfactory results. The contribution of the 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 planned to be a key element of the macroprudential toolkit.
Subjects: 
Systemic stress
Financial Stress Index
Dynamic Bayesian Factor Model
Financial System
Macroprudential Toolkit
JEL: 
G01
G10
G20
E44
Document Type: 
Working Paper

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