BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Mapping the State of Financial Stability
() and Tuomas A. Peltonen
Abstract: The paper uses the Self-Organizing Map for mapping the
state of financial stability and visualizing the sources of systemic risks
on a two-dimensional plane as well as for predicting systemic financial
crises. The Self-Organizing Financial Stability Map (SOFSM) enables a
two-dimensional representation of a multidimensional financial stability
space and thus allows disentangling the individual sources impacting on
systemic risks. The SOFSM can be used to monitor macro-financial
vulnerabilities by locating a country in the financial stability cycle:
being it either in the pre-crisis, crisis, post-crisis or tranquil state.
In addition, the SOFSM performs better than or equally well as a logit
model in classifying in-sample data and predicting out-of-sample the global
financial crisis that started in 2007. Model robustness is tested by
varying the thresholds of the models, the policymaker’s preferences, and
the forecasting horizon.
Keywords: systemic financial crisis; systemic risk; self-organizing maps; visualisation; prediction; macroprudential supervision; (follow links to similar papers)
JEL-Codes: E44; E58; F01; F37; G01; (follow links to similar papers)
44 pages, August 22, 2011
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