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Mapping the State of Financial Stability
Peter Sarlin, Tuomas Peltonen, Mapping the State of Financial Stability. ECB WP 1382, European Central Bank, 2011.
Abstract:
The paper uses the Self-Organizing Map for mapping the state of financial stability and visualizing the sources of systemic risks as well as for predicting systemic financial crises. The Self-Organizing Financial Stability Map (SOFSM) enables a two-dimensional representation of a multidimensional financial stability space that allows disentangling the individual sources impacting on systemic risks. The SOFSM can be used to monitor macro-financial vulnerabilities by locating a country in the financial stability cycle: being it either in the pre-crisis, crisis, post-crisis or tranquil state. In addition, the SOFSM performs better than or equally well as a logit model in classifying in-sample data and predicting out-of-sample the global financial crisis that started in 2007. Model robustness is tested by varying the thresholds of the models, the policymaker’s preferences, and the forecasting horizons.
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BibTeX entry:
@TECHREPORT{tSaPe11a,
title = {Mapping the State of Financial Stability},
author = {Sarlin, Peter and Peltonen, Tuomas},
number = {1382},
series = {ECB WP},
publisher = {European Central Bank},
year = {2011},
keywords = {systemic financial crisis, systemic risk, Self-Organizing Map (SOM), visualization, prediction, macroprudential supervision},
}
Belongs to TUCS Research Unit(s): Data Mining and Knowledge Management Laboratory