CISS - A Composite Indicator of Systemic Stress in the Financial System

By Dániel Holló, Manfred K. Kremer, M. Duca. Social Science Research Network, 2012

694 citations recorded by the source corpus.

This paper introduces a new indicator of contemporaneous stress in the financial system named Composite Indicator of Systemic Stress (CISS). Its specific statistical design is shaped according to standard definitions of systemic risk. The main methodological innovation of the CISS is the application of basic portfolio theory to the aggregation of five market-specific subindices created from a total of 15 individual financial stress measures. The aggregation accordingly takes into account the time-varying cross-correlations between the subindices. As a result, the CISS puts relatively more weight on situations in which stress prevails in several market segments at the same time, capturing the idea that financial stress is more systemic and thus more dangerous for the economy as a whole if financial instability spreads more widely across the whole financial system. Applied to euro area data, we determine within a threshold VAR model a systemic crisis-level of the CISS at which financial stress tends to depress real economic activity. Weekly updates of the CISS dataset at: sdw.ecb.europa.eu/browseSelection.do?node=9551138 JEL Classification: G01, G10, G20, E44

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/387c5f9637852709decb2cab14d58d511890d578

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Citations in the corpus

Financial Stability and Economic Performance (2015, neutral): “The ECB has developed a Composite Indicator of Systemic Stress (CISS) for the euro area as a whole (Hollo et al., 2012), available since 1999; it gives an appreciation of the macroeconomic financial stability.”
Operationalising the Countercyclical Capital Buffer: Indicator Selection, Threshold Identification and Calibration Options (2014, background): “…considerations into account, this paper investigates the signalling performance of market based indicators (the ECB’s CISS indicator described in Holló et al., 2012; the LIBOR-OIS spread2; bank and sovereign credit default swap (CDS) premia; covered bonds spreads, etc.) and an aggregate bank…”
The Determinants of Sovereign Bond Yield Spreads in the EMU (2012, background): “2 Holló et al. (2012) develop a comprehensive indicator of financial stress for the EMU composed using information from numerous financial markets, covering the period 1987-2010.”
Uncovering the heterogeneous effects of ECB unconventional monetary policies across euro area countries (2016, positive): “We also include a measure of financial stress and economic risk at the eurozone level, proxied by the CISS indicator of Holló et al. (2012).”
Effectiveness and Transmission of the ECB's Balance Sheet Policies (2014, positive): “…money market rates or on credit supply, but these variables are also driven by non-policy and conventional monetary policy innovations.6 In order to capture financial stress and economic risk during the sample period, we include the CISS-indicator of Holló et al. (2012) in the benchmark VAR-model.”
Determinants of Financial Stress in Emerging Market Economies (2014, neutral): “…financial markets – other authors developed their own versions of FSI, including Hakkio and Keeton (2009) for the Federal Reserve Bank of Kansas City; Hollo et al. (2012) for European markets; Misina and Tkacz (2009) for selected advanced economies; and Yiu et al. (2010) for Hong Kong Monetary…”
Flights to Safety (2014, positive): “The majority of those articles use data from the financial sector only (see e.g. Acharya et al. (2017); Adrian and Brunnermeier (2016); Allen et al. (2012); Brownlees and Engle (2011)), whereas Hollo et al. (2012) and Aikman et al. (2017) use a wider set of stress indicators.”
The Financial Stress Index: Identification of Systemic Risk Conditions (2011, neutral): “We confirm the observation of [56] that the difference in aggregate stress produced by these approaches is relatively minor.”
Dating systemic financial stress episodes in the EU countries (2017, methodology): “First, the realised volatility (V EER) is computed as the absolute value of the monthly growth rate of the real effective exchange rate.”