The OFR Financial Stress Index

Abstract

We introduce a financial stress index that was developed by the Office of Financial Research (OFR FSI) and detail its purpose, construction, interpretation, and use in financial market monitoring. The index employs a novel and flexible methodology using daily data from global financial markets. Analysis for the 2000–2018 time period is presented. Using a logistic regression framework and dates of government intervention in the financial system as a proxy for stress events, we found that the OFR FSI performs well in identifying systemic financial stress. In addition, we find that the OFR FSI leads the Chicago Fed National Activity Index in a Granger causality analysis, suggesting that increases in financial stress help predict decreases in economic activity.

Spillovers among energy commodities and the Russian stock market

“…As additional controls, we include the Russian economic policy uncertainty index (EPU RUSSIA) and the global economic policy uncertainty index (EPU) proposed by Baker et al (2016) to account for policy-related economic uncertainty. Furthermore, to control for the impact of the financial market, we include the OFR financial stress index (FSI) developed by the US Department of Treasury (Monin, 2019). This index measures the level of systemic financial stress, such as abrupt disruptions and other financial events that may impact the normal functioning of the financial markets (i.e., the Global Financial…”

Analysis of the Literature of Financial Stress Index and Proposed Model for Pakistan.

“…Controlling financial stability involves the assessment of both vulnerabilities and stress. The OFR has developed a "Financial System Vulnerabilities Detector" to detect possible flaws in the financial system the inherent shortcomings of a framework that can induce, intensify, or distribute tension (Monin, 2019).…”

A global perspective on macroprudential policy interaction with systemic risk, real economic activity, and monetary intervention

“…Considering that SRISK appears to outperform its main competitors, primarily MES and ∆CoVaR, in various empirical horse races in terms of consistency and informativeness, we do not focus on these systemic risk metrics to test the validity of our baseline results. Instead, we replace SRISK with the OFR financial stress index proposed by Monin (2019) and used by the US Financial Stability Oversight Council to monitor global financial stability. 10 It co-moves with the SRISK measure, but not in a one-toone manner: their correlation ratio is 0.4, and it is significant at the 1% level.…”

“…Namely, it also aims to detect when the global financial system functioning is impaired by covering the dynamics of key financial markets and considering the vulnerability of different countries, both advanced and emerging market economies. 11 The index is available on a high-frequency basis and helps predict decreases in the real economic activity (Monin 2019). Our baseline methodology and its two extensions fully apply to the robustness check, based on the OFR financial stress index.…”

“…We conducted a robustness check comprising two exercises on our baseline results. First, we replaced SRISK with another systemic stress indicator, namely, the Office of Financial Research (OFR) financial stress index proposed by Monin (2019) and used by the US Financial Stability Oversight Council, to monitor global financial stability. This exercise also involves two extensions to the baseline framework, that is, decomposing the OFR financial stress index into high and low regimes and dividing the index of global macroprudential policy activism into sub-indices.…”