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A new method for measuring financial resilience

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  • Chen, Yilin
  • Sun, Chentong

Abstract

This paper proposes a new model to measure financial resilience from the perspective of external risk shocks, which composes of three submodels, namely, the dynamic factor model, the time-varying parameter vector autoregression (TVP-VAR) model, and the resilience characteristic measurement model with two dimensions: absorption intensity and absorption duration. At the theoretical level, we simulate and analyze the changing paths of financial resilience under different scenarios. At the empirical level, we apply the model to study the resilience of the UK financial market. The results indicate that the UK financial resilience fluctuations exhibit phased characteristics and there is a clear inverse relationship between absorption intensity and absorption duration. Notably, periods of low resilience often coincide with specific risk events.

Suggested Citation

  • Chen, Yilin & Sun, Chentong, 2024. "A new method for measuring financial resilience," Economics Letters, Elsevier, vol. 242(C).
    • Handle: RePEc:eee:ecolet:v:242:y:2024:i:c:s0165176524003677
    DOI: 10.1016/j.econlet.2024.111883
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    Cited by:

    1. Si-yao Wei & Wei-xing Zhou, 2024. "The resilience of China's financial markets: With a focus on the impact of its climate policy uncertainty," Papers 2409.18422, arXiv.org.

    More about this item

    Keywords

    Financial market; Financial resilience model; Absorption intensity; Absorption duration;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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