Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212690 
Year of Publication: 
2011
Series/Report no.: 
BOFIT Discussion Papers No. 2/2011
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
This paper develops a framework for assessing systemic risks and for predicting (out-of-sample) systemic events, i.e. periods of extreme financial instability with potential real costs. We test the ability of a wide range of stand alone. and composite indicators in predicting systemic events and evaluate them by taking into account policy makers f preferences between false alarms and missing signals. Our results highlight the importance of considering jointly various indicators in a multiva-riate framework. We find that taking into account jointly domestic and global macro-financial vul-nerabilities greatly improves the performance of discrete choice models in forecasting systemic events. Our framework shows a good out-of-sample performance in predicting the last financial cri-sis. Finally, our model would have issued an early warning signal for the United States in 2006Q2, 5 quarters before the emergence of money markets tensions in August 2007.
Subjects: 
Avaisanat: Early warning indicators
asset price booms and busts
financial stress
macro-prudential policies
JEL: 
E44
E58
F01
F37
G01
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-697-2
Document Type: 
Working Paper

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