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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Mapping Heat in the U.S. Financial System
We provide a framework for assessing the build-up of vulnerabilities in the U.S. financial system. We collect forty-four indicators of financial and balance-sheet conditions, cutting across measures of valuation pressures, nonfinancial borrowing, and financial-sector health. We place the data in economic categories, track their evolution, and develop an algorithmic approach to monitoring vulnerabilities that can complement the more judgmental approach of most official-sector organizations. Our approach picks up rising imbalances in the U.S. financial system through the mid-2000s, presaging the financial crisis. We also highlight several statistical properties of our approach: most importantly, our summary measures of system-wide vulnerabilities lead the credit-to-GDP gap (a key gauge in Basel III and related research) by a year or more. Thus, our framework may provide useful information for setting macroprudential policy tools such as the countercyclical capital buffer.
Cite this item
David Aikman & Michael T. Kiley & Seung Jung Lee & Michael G. Palumbo & Missaka Warusawitharana, Mapping Heat in the U.S. Financial System, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2015-59, 24 Jun 2015.
- G01 - Financial Economics - - General - - - Financial Crises
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
Keywords: Early warning system; financial crisis; financial stability; financial vulnerabilities; heat maps; macroprudential policy; systemic risk; data visualization; countercyclical capital buffers
This item with handle RePEc:fip:fedgfe:2015-59
is also listed on EconPapers
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