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What Predicts Financial (In)Stability? A Bayesian Approach

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Sigmund, M., Stein, I. What Predicts Financial (In)Stability? A Bayesian Approach. Credit and Capital Markets – Kredit und Kapital, 50(3), 299-336. https://doi.org/10.3790/ccm.50.3.299
Sigmund, Michael and Stein, Ingrid "What Predicts Financial (In)Stability? A Bayesian Approach" Credit and Capital Markets – Kredit und Kapital 50.3, 2017, 299-336. https://doi.org/10.3790/ccm.50.3.299
Sigmund, Michael/Stein, Ingrid (2017): What Predicts Financial (In)Stability? A Bayesian Approach, in: Credit and Capital Markets – Kredit und Kapital, vol. 50, iss. 3, 299-336, [online] https://doi.org/10.3790/ccm.50.3.299

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What Predicts Financial (In)Stability? A Bayesian Approach

Sigmund, Michael | Stein, Ingrid

Credit and Capital Markets – Kredit und Kapital, Vol. 50 (2017), Iss. 3 : pp. 299–336

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Author Details

Dr. Michael Sigmund, Oesterreichische Nationalbank, Financial Stability and Macroprudential Supervision Division, Otto Wagner Platz 3, 1090 Vienna Austria

Dr. Ingrid Stein, Deutsche Bundesbank, Department of Financial Stability, Wilhelm-Epstein-Strasse 14, 60431 Frankfurt Germany

Abstract

This paper contributes to the literature on early warning indicators by applying a Bayesian model averaging approach. Our analysis, based on Austrian data, is carried out in two steps: First, we construct a quarterly financial stress index (AFSI) quantifying the level of stress in the Austrian financial system. Second, we examine the predictive power of various indicators, as measured by their ability to forecast the AFSI. Our approach allows us to investigate a large number of indicators. The results show that banks' share price growth and cross-border lending are among the best early warning indicators.