A FINANCIAL SYSTEMIC STRESS INDEX FOR GREECE
Dimitrios P. Louzis
Bank of Greece
Angelos T. Vouldis
Bank of Greece
ABSTRACT
The paper develops a financial systemic stress index (FSSI) for Greece. We present a methodology for constructing and evaluating a systemic stress index which: i) adopts the suggestion of Hollo et al. (2012) [Hollo, Kremer, and Duca (2012) “CISS – A ‘Composite Indicator of Systemic Stress’ in the Financial System” ECB Working Paper 1426] to incorporate time-varying correlations between different market segments, and uses a multivariate GARCH approach which is able to capture abrupt changes in correlations; ii) utilizes both market and balance sheet data; and iii) evaluates the FSSI utilizing the results of a survey, conducted among financial experts, in order to construct a benchmark chronology of financial crises for Greece, which in turn is used to investigate whether changes in the FSSI are good indicators for financial crises. The results show that the FSSI is able to provide a precise periodization of crises.
Keywords: Financial crisis, systemic stress, stress index, multivariate GARCH.
JEL Classifications: G01, G10, G20, E44
Acknowledgements: We are grateful to Heather Gibson, Manfred Kremer, Stephen Hall, George Kaoudis, Vassilis Metaxas, Nick Tsaveas and Kostas Zavandis for their constructive comments. We would also like to thank participants at the ECB Macroprudential Research Network (MaRS) and 1st ECB MaRS conference for helpful discussions. The views expressed in this paper do not necessarily represent Bank of Greece.
Correspondence:
Angelos Vouldis
Bank of Greece
Financial Stability Department.
3 Amerikis Str.,
105 64, Athens, Greece,
e-mail: avouldis@bankofgreece.gr