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A Semiparametric Early Warning Model of Financial Stress Events

Author

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  • Ian Christensen
  • Fuchun Li

Abstract

The authors use the Financial Stress Index created by the International Monetary Fund to predict the likelihood of financial stress events for five developed countries: Canada, France, Germany, the United Kingdom and the United States. They use a semiparametric panel data model with nonparametric specification of the link functions and linear index function. The empirical results show that the semiparametric early warning model captures some well-known financial stress events. For Canada, Germany, the United Kingdom and the United States, the semiparametric model can provide much better out-of-sample predicted probabilities than the logit model for the time period from 2007Q2 to 2010Q2, while for France, the logit model provides better performance for non-financial stress events than the semiparametric model.

Suggested Citation

  • Ian Christensen & Fuchun Li, 2013. "A Semiparametric Early Warning Model of Financial Stress Events," Staff Working Papers 13-13, Bank of Canada.
    • Handle: RePEc:bca:bocawp:13-13
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    References listed on IDEAS

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    Cited by:

    1. Christensen, Ian & Li, Fuchun, 2014. "Predicting financial stress events: A signal extraction approach," Journal of Financial Stability, Elsevier, vol. 14(C), pages 54-65.
    2. V. Coudert & J. Idier, 2016. "An Early Warning System for Macro-prudential Policy in France," Working papers 609, Banque de France.
    3. Gurnain Pasricha & Tom Roberts & Ian Christensen & Brad Howell, 2013. "Assessing Financial System Vulnerabilities: An Early Warning Approach," Bank of Canada Review, Bank of Canada, vol. 2013(Autumn), pages 10-19.

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    More about this item

    Keywords

    Econometric and statistical methods; Financial stability;

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General

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