Thursday, December 23, 2010

St. Louis Fed Financial Stress Index Returns to Pre-Recession, Pre-Financial Crisis Levels

The St. Louis Federal Reserve updated its Financial Stress Index today for the week ending December 17, see chart above (data here).  For those who don't like the CBOE VIX Index as a measure of stock market uncertainty or volatility, this is an alternative measure of the amount of financial stress affecting the markets (explanation here) based on 18 individual variables including seven different interest rates, six interest rate yield spreads, and five measures of market volatility (including the VIX).  According to the St. Louis Fed, each of the 18 component variables in the Financial Stress Index captures some aspect of financial stress in the markets, and the Financial Stress Index incorporates the 18 variables into a single, composite index measure that tracks the amount of overall financial stress in the markets.   

The chart above shows that the St. Louis Fed Financial Stress Index has now returned to the pre-recession, pre-financial crisis levels that prevailed back in the fall of 2007. 


At 12/23/2010 2:02 PM, Blogger morganovich said...

i'd love to see this chart overlaid onto the VIX.

it doesn't look meaningfully different or any more predictive to me.

the fed puts out loads of models (like their yield spread recession model) that have zero predictive power.

i have not ever really played with this one, but eyeballing it, i'd say it's a coincident indicator at best and quite possibly a lagging one.

At 12/23/2010 5:25 PM, Blogger rjs said...

Pre-Recession, Pre-Financial Crisis Levels?
does that mean we're going to start the crisis & recesssion all over again?


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