Identifying and Predicting Financial Stress in ASEAN+3 Economies

The paper presents financial stress indices for ASEAN+3 economies for macro-financial surveillance, identifying stress regimes and predicting regime changes, aiding market and policy decision-making.

Key Takeaways

• High-frequency country specific financial stress indices can align with regional and global financial stress events, serving as valuable tools for macro-financial surveillance.
• Univariate regime switching models fitted to these indices can identify transitions between low-, medium-, and high stress regimes in real time.
• Momentum-based technical analysis methods applied to the indices can predict regime changes ahead of time with reasonable accuracy, providing short-term advance warning for market practitioners and policy makers.

Introduction to Financial Stress Indices

This paper presents high-frequency financial stress indices (FSIs) specifically developed for selected ASEAN+3 economies, which are indispensable for macro-financial surveillance. FSIs are critical as they remain synchronized with both regional and global financial stress events. This synchronization enhances their value as monitoring tools, providing an accurate measure of financial stability across these economies. By analyzing these indices, stakeholders can maintain a comprehensive understanding of financial stress patterns and their potential impacts.

Regime Switching Models

Moreover, when applying univariate regime switching models to these FSIs, one can effectively identify transitions between low-, medium-, and high-stress regimes in real-time. Such models allow for timely detection of financial distress phases, offering crucial insights for stakeholders. These insights are invaluable for both market practitioners and policymakers, helping them to respond proactively to changing financial conditions, ultimately ensuring greater financial stability across the concerned economies.

Predictive Capability and Implications

In certain ASEAN+3 economies, momentum-based technical analysis methods can predict regime changes with reasonable accuracy by leveraging the information embedded in these indices. These predictive capabilities offer a short-term advance warning of potential stress regimes, aiding market practitioners in making informed hedging and tactical decisions. Additionally, they notify policymakers of possible impending financial distress. As a result, proactive measures can be implemented, minimizing market volatility and enhancing economic resilience.

Source: ASEAN+3 Macroeconomic Research Office