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Measuring financial stability in the presence of energy shocks

Author

Listed:
  • Sánchez-García, Javier
  • Mattera, Raffaele
  • Cruz-Rambaud, Salvador
  • Cerqueti, Roy

Abstract

The Russia–Ukraine conflict highlighted how important energy is for the surveillance of economies worldwide. Both war and economic sanctions inevitably affected energy-related commodity prices. Although shocks in energy commodities are known to have an effect on financial stability, this information is not included in existing financial stability indicators. In this paper, we first provide empirical evidence on the existing relationship between energy-related commodities and financial stability in the EU, UK and US, as well as their importance in the forecast of economic downturns. Based on this evidence, we propose a new composite indicator of financial stability which incorporates relevant information from the energy markets. The suitability of the new composite indicator is assessed by its ability to track financial, economic, and energy crises.

Suggested Citation

  • Sánchez-García, Javier & Mattera, Raffaele & Cruz-Rambaud, Salvador & Cerqueti, Roy, 2024. "Measuring financial stability in the presence of energy shocks," Energy Economics, Elsevier, vol. 139(C).
    • Handle: RePEc:eee:eneeco:v:139:y:2024:i:c:s0140988324006303
    DOI: 10.1016/j.eneco.2024.107922
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    Keywords

    Energy market; Financial stress; Dynamic Factor Model (DFM); Composite indicators; Macro-financial linkages; Real-time macroeconomics;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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