RBI working paper lays down 11 indicators of financial stress

by Yash Shah

The paper titled ‘Measuring Financial Stress in India’ authored by Manjusha Senapati and Rajesh Kavediya said that world over, central banks measure financial stress by constructing the financial stress index (FSI) to monitor the functioning and resilience of financial system. Such an index provides an aggregate measure of financial stability to policymakers. The paper has identified the indicators from the money market, debt market, equity market, forex market and the banking system. The indicators in the money market sub-index are the realised volatility of the three-month interbank rate and the interbank spread. The indicators in the debt market sub-index are the realised volatility of 10-year government bond yields and the 10-year government bond yields spread over global yields. The paper found when the FSIs are above the 90th percentile, they correspond to substantial declines in IIP growth.

References
1. https://www.financialexpress.com/economy/rbi-working-paper-lays-down-11-indicators-of-financial-stress/2090258/
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