Measuring the Role of Financial Stress On Business and Financial Indicators

Abstract

Owing to how crises in financial markets have historically been documented, i.e. either with an existence of crisis or not, it has been difficult to understand the real intensity and the impact of financial stress on business and financial indicators. We revisit the issues of how financial stress impacts important business. and financial indicators such as commercial bank loans, consumer price index, money base, initial jobless claims, stock market index, US Dollar index, Oil index, and home price index, in order to compare realistic intensity of stress and the degree of transmission amongst variables. We use a relatively new indicator for financial stress; St. Louis Federal Reserve financial stress index (STLFSI). Results from our study indicate STLFS/ index as a superior indicator in anticipating short-run changes in Business and Finance activity.