Research Discussion Papers, Bank of Finland
No 7/2015:
Measuring financial stress – A country specific stress index for Finland
Jarkko Huotari ()
Abstract: I propose a financial stress index (FSI) for the Finnish
financial system that aims to reflect the functionality of the financial
system and provide an aggregate measure of financial stress in the money,
bond, equity and foreign exchange markets and the banking sector. The FSI
is a composite index that combines information from these markets and
provides a measure of stress in the financial system as a whole. The FSI
has obvious benefits for all participants in the financial markets who need
a tool for monitoring the functioning of the financial markets, as it
provides information on systemic stress events which are not as easily
captured with the stress measures of individual markets or sectors. The
ESRB recommendation (ESRB, 2014a) also states that national or
international FSIs could be used when making a decision about the release
of the counter-cyclical capital buffer. Hence, the index can also be used
to support the macro-prudential policy decision making in Finland.
Keywords: financial stress index; counter-cyclical capital buffer; macro-prudential policy; (follow links to similar papers)
JEL-Codes: C43; G01; G28; (follow links to similar papers)
41 pages, March 11, 2015
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URN:NBN:fi:bof-201503171116 
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