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Tracking Recent Levels of Financial Stress - April

Advisory: This article is based in whole or in part on the CFSI (Cleveland Financial Stress Indicator), an indicator that was discontinued by the Federal Reserve Bank of Cleveland in 2016 due to the discovery of errors in the indicator’s construction. These errors overestimated stress in the real estate and securitization markets. As a result, readers should be cautious and interpret any analysis based on CFSI data with those errors in mind.

The Cleveland Financial Stress Index (CFSI) remained in a Grade 1 or “low stress” period throughout most of the first quarter of 2014. As January progressed, the index trended upward until it reached its recent peak in early February and crossed into a Grade 2 or a “normal stress” period. Since that time, the index has subsided while remaining at an elevated level within Grade 1. As of April 1, the index stands at −1.06, which is 4.15 standard deviations below the historical high in December 2008 and 1.03 standard deviations above the historical low in January 2014. The index is down 0.87 standard deviations from this time last year.

Figure 1: Cleveland Financial Stress Index

Increased contributions of the equity market to overall financial stress accounted for the majority of the uptick in the CFSI in early February. From the beginning of January to early February, the contribution of the equity market to overall financial stress increased. Toward the end of the quarter, the equity market’s contribution began to wane, and the overall index fell as a result.

Figure 2: Equity Market Contribution to Stress

Of the remaining financial markets measured by the CFSI, the credit, funding, foreign exchange, and real estate markets contributed to stress at relatively constant levels over the first quarter of 2014. The securitization market showed moderate increased contributions to stress in early February, which were sustained through the end of the quarter.

Figure 3: Stress-Level Contributions of Component Markets to CFSI

The Cleveland Financial Stress Index and all of its accompanying data are posted to the Federal Reserve Bank of Cleveland’s website at 3 p.m. daily. For a brief overview of how the index is constructed see this page. The CFSI and its components are also available on FRED (Federal Reserve Economic Data), a service of the Federal Reserve Bank of St. Louis. FRED allows users to download, graph, and track more than 200,000 data series.

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