Systemic risk and macroeconomic forecasting: A globally applicable copula‐based approach

Abstract

Financial markets are interconnected and fragile making them vulnerable to systemic contagion, and measuring this risk is crucial for regulatory responsiveness. This study introduces a new set of measures for systemic risk using a copula‐based (CB) estimation method with a focus on U.S. Bank Holding Companies. Unlike most of the prevailing systemic risk measures, CB methodology relies on balance sheet data, instead of market price data, which makes it globally applicable. We compared CB measures with three existing measures of systemic risk that rely on market data and find that CB measures provide competitive results, in both the short and medium term, for systemic risk forecasting. The forecasting evaluation shows that CB measures perform consistently better than historical unconditional quantile of macroeconomic indicators. By using out‐of‐sample predictive quantile regression, we ascertain that CB systemic risk measures can forecast the 10th and 20th percentile movements of different macroeconomic indicators up to 6 quarters in advance. Moreover, systemic risk measures, existing as well as CB, are better predictors of the 20th percentile shocks to sector‐specific indicator and 10th percentile shocks to broader macroeconomic indicators.

Traditional commercial banking and systemic risk: Evidence from Hungary

“…Chen et al, 2021;Rodríguez-Moreno & Peña, 2013;Wang et al, 2021;Frattarolo et al, 2020;Choi et al, 2020) and accounting-based calculations (e.g. Ahmad et al, 2021;Duarte & Eisenbach, 2021) are also prevalent. The database for the analysis is associated with accounting-based balance sheet and income statement data that was published by the Magyar Nemzeti Bank (the central bank of Hungary, https://statisztika.mnb.hu/adatok-idosorok).…”

“…Previous literature frequently refers to the absorption ratio when discussing systemic risk (e.g. Ahmad et al, 2021;Lux et al, 2020;Frattarolo et al, 2020;Wang et al, 2021), and it has been included in the analysis in several papers (e.g. Chen et al, 2021;Jia et al, 2020;Luu, 2021;Choi et al, 2020).…”

Forecasting the different influencing factors of household food waste behavior in China under the COVID‐19 pandemic

“…A fundamental assumption in economics is that consumers' demand for goods or services is based on the premise that they have both the desire to buy and the ability to buy (Ahmad et al, 2021). Most consumers will be more sensitive to the price of goods when they make purchase decisions, mainly because their income limits them.…”