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Financial Stress Index
The Financial Stress Index (FSI) is a measurement of stress in the financial system that is designed to capture risk, financial market volatility, and credit market conditions. It is a composite index that combines various financial indicators such as interest rate spreads, equity market volatility, and credit risk spreads to assess the level of stress in the financial system.
The index is calculated by taking a weighted average of several indicators that are deemed to be indicative of financial stress, such as:
- Interest rate spreads: the difference between interest rates on government bonds and corporate bonds.
- Equity market volatility: the degree to which stock prices fluctuate.
- Credit risk spreads: the difference between yields on high-risk and low-risk bonds.
The FSI is useful for policymakers, investors, and economists as it provides a comprehensive view of the overall state of the financial system. By monitoring the index, policymakers can identify when the financial system is under stress and take action to address any issues that arise. Investors can use the FSI to identify potential risks in the financial markets, while economists can use it to study the relationship between financial stress and the broader economy.
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