Markov switching model enables diagnosis of ‘systemic financial stress episodes’, ECB paper argues
European Union countries have undergone 68 episodes since 1964, researchers say
A Markov switching model can be used to diagnose episodes of systemic financial stress, a working paper published recently by the European Central Bank argues.
In Dating systemic financial stress episodes in the EU countries, Thibaut Duprey, Benjamin Klaus and Tuomas Peltonen define systemic financial stress as episodes of coincident, and possibly mutually reinforcing, major stress in the financial and real economies.
The authors adopt what they call a three-step approach to diagnose systemic
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