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Composite Indicator of Financial Stress for Portugal

Teresa Balcão Reis
Inês Pereira
José Pedro Braga
Publication Year 
This paper proposes a Composite Indicator of Financial Stress for Portugal (ICSF). Sincefinancial stress can have a vast impact in the real economy, monitoring and measuring thelevel of stress can contribute to formulate appropriate policy measures. Similar to Holló et al.(2012), the construction of the ICSF involves the aggregation of five subindices from the moneymarket, bond market, equity market, financial intermediaries and foreign exchange marketinto a composite indicator, using portfolio theory (where the subindices aggregation reflectstheir time-varying cross-correlation structure). The article shows that the ICSF identifies andmeasures adequately the most relevant stress events that affected the Portuguese financialmarkets since 1999, showing a clear divergence in some moments from euro area compositestress indicators.
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Journal (repec) 
Finantial Stability Article