The Building Of Financial Stress Index And Analysising Its Impact On The Real Economy

The 1990's of last century was a period of frequent occurrence of crisis,the financial or economic crisis brought huge disaster to the crisis countries,including the Russian financial crisis in 1998,Brazil and Argentina crisis in 1999,the US subprime mortgage crisis in 2007,the recent European debt crisis and other global and regional financial crisis will undoubtedly brought serious economic losses to parties,also indirectly affect the development of economic of our country.Maintaining the stability of the financial system and preventing the financial crisis is of great significance to the economic security of a country,and an accurate characterization of stress is a prerequisite for any researcher attempting to forecast financial crises.Therefore,domestic and foreign scholars pay more and more attention to the quantitative measure study of systemic financial risk.The International Monetary Fund as the representative of a large number of international organizations with the regulatory authorities of some countries had conducted in-depth research about the vulnerability of the financial system,and obtained some achievements.The European central bank researchers in a working paper published in 2014 used the panel vector autoregression and impulse response function method,to estimate the costs in terms of the real output gap,drawed the following conclusion:banking and debt crisis is relevant,typically both ahead of a currency crisis,the converse is not true.From the point of view of the overall output loss,the bank crisis is the biggest crisis.Output of recovery will take about six years.And banking crises are very persistent.In particular,there is still a 50%probability that the banking crisis will last even six quarters after its onset.The mean cumulative loss of a banking crisis interms of GDP amounts to 6%after six years in their simulation.This paper,according to the KLR signal analysis method(1998)and Illing&Liu(2003)who put forward the concept of financial stress and its construction method,combined with the actual situation of China's financial system and financial intermediaries,selects variables and develops an index of financial stress for our country.The establishment of FSI provides a quantitative index for the financial system.As a continuous variable,where extreme values are called financial crises.The change of FSI value can depict the pressure is on rising or falling,can also be used to depict the duration of extreme events.On the basis of reference of the existing literature at home and abroad,on the analysis of the existing financial stress measure method and the application of FSI,given the data availability and continuity,this paper choices a monthly database which from July 2007 to December 2015.Indicators are from the banking sector,the stock market,securities market and foreign exchange market,using three different weighted method to construct China's financial stress index.In this paper,the structure is as follows:the first part is the introduction,and mainly describes the writing background,the domestic and foreign literature review;The second part introduces the theory of financial stress index and the econometrics method;the third part is the constrction of China's financial stress index:including the reasons for variable selection,data sources,data processing method,the construction method of comprehensive index of FSI;the fourth part is the empirical analysis.And introduces the method for the identification of periods of financial stress,the VAR model and impulse response function is used to analysis the relationship between the variables of the financial stress index and the reaction of the real economy operation,the representative variables have Manufacturing Purchasing Managers Index.GDP growth and inflation.The fifth part is the conclusion of this paper and relevant policy recommendations.Empirical analysis shows that in December 2007 to October 2008,affected by the subprime mortgage crisis in the United States,China's system of financial pressure was at a higher value;From the beginning of 2009,financial pressures had came down,but with the acceleration of market-oriented interest rate reform process,since June 2013,the financial pressure was in the rising trend,The appearance of "money shortage"phenomenon in the inter-bank money market was the embodiment of the short-term liquidity squeeze of the banking system.Since 2015,China's economic downward pressure is more obvious,steel,cement and other industries have a serious excess capacity,the government need to adjust the economic structure with greater efforts.Research shows that China's financial stress mainly comes from the banking sector,followed by the stock market,Since the start of the exchange rate system reform in July 2005,Pressure on the foreign exchange market is also increasing,volatility is also worth to be concerned about;Choose price,GDP growth rate,the purchasing managers index as the proxy variable of entity economy,using granger causality to analysis the effect relationship between financial stress and the real economy,the result shows that financial pressure is the granger cause of the change of the real economy,the opposite is not established.Using impulse response function to give a quantitative analysis,the results show that when the financial pressure rises,particularly have obvious impact on the real economy,the value of the PMI drop rapidly in the second month,the decline is consistent to the fifth month.The GDP growth rate lagging behind in the first quarter fell rapidly,lag four quarters it's value reached-0.43,with the policy adjustment,it take three years so that the output can be restored to the original level.The biggest impact on the inflation is the first two periods,and is a positive impact,the maximum value is 0.13 in the first month,analysis shows that the systemic financial stress and inflation correlation is very high,in the short-term FSI is a useful tool for the forecasting of inflation.Finally,in view of the present status of China's financial system,the corresponding policy recommendations are put forward.