Identifying Systemic Stress in Iran's Financial Market

Abstract

Following the consequences of the recent financial crisis, measuring, analyzing, and understanding the systemic risk of the financial system has become very important in new economic studies. Systemic stress is another form of systemic risk that has been occurred. The purpose of this paper is to quantify systemic stress and financial stress by identifying the main actor as the main source of financial stress. In this study, the systemic stress index and dynamic financial stress of Iran's economy are estimated monthly from January 2008 to January 2017 with the EWMA approach and dynamic factor analysis method. The systemic stress index is estimated to be non-recursive and real-time (the usual systemic stress index). One of the important achievements of this research is the one-lag and two-lag adaptation between the highest amounts of financial stress and the crises of Iran's economy. So that the fluctuations of the financial stress index of 2017 and 2012 show the financial crises in these years perfectly. Another result of the study shows that the stock market fluctuations and the banking and foreign exchange sector are the most important stressor in the financial stress index.

Keywords

• systemic risk
• systemic stress
• dynamic factor analysis method
• recursive stress
• real-time