Magazine article Economic Trends

Tracking Recent Levels of Financial Stress

Magazine article Economic Trends

Tracking Recent Levels of Financial Stress

Article excerpt

09.05.13

The level of the Cleveland Financial Stress Index (CFSI) has decreased in the past few months, indicating a lower level of systemic financial stress. Although the most recent reading of the index from September 4 is in Grade 2 or a "normal stress period " the index had been in a Grade 1 or "low stress period" for 49 days since June 1. The index currently stands at -0.43, which is up 0.63 points from a recent low on July 15, 2013. (The points refer to the standardized distance from the mean or the z-score). The index is down 1.32 points over the past year and is 3.52 points lower than its historical peak in December 2008.

A key feature of the CFSI is its ability to decompose the total level of system stress into each of the six financial submarkcts represented in the index. These six financial submarkcts include credit, equity, funding, foreign exchange, securitization, and real estate. (The data for these submarkcts are reported in levels and are not standardized into z-scores.) A broad comparison of recent trends in these markets can be made by looking at monthly observations. The chart below shows monthly levels of stress in each market as of the first business day for each of the past four months. Using the comparison, we observe moderate declines in stress in the credit and real estate markets and more significant decreases in the securitization markets. Foreign exchange markets experience a modest stress increase, and funding markets remain flat. …

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