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Tracking Recent Levels of Financial Stress - October

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) fluctuated between grades 1 and 2 throughout the third quarter of 2014. As of October 9, the index stood at −0.426, which is 3.599 standard deviations below the historical high in December 2008 and 1.707 standard deviations above the historical low in January 2014. The index is down 0.072 standard deviations from this time last year.

Figure 1: Cleveland Financial Stress Index

As the quarter progressed, increasing contributions of the real estate and securitization markets were offset by decreasing contributions of the foreign exchange market. As stock price indexes approached historic highs in late August and early September, the equity market’s contribution to stress declined. The CFSI’s credit and funding markets remained relatively stable over the quarter.

Figure 2: Average 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 pm 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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