A financial stress index for a highly dollarized developing country: The case of Lebanon

Özet

The aim of this paper is to construct the first comprehensive Financial Stress Index for Lebanon, dubbedthe IFEFSI (Institute of Financial Economics Financial Stress Index). This is a broad coincident compositeindex that includes three different market segments; the banking sector, the equities market, and theforeign exchange and other markets. It is constructed as a continuous real-time measure that quantifiesthe level of systemic stress by measuring latent conditions. As a metric for financial conditions, the IFEFSIshould provide valuable information to macroprudential regulators whose aim is to maintain a smoothand resilient financial system. By using it as a tool to help monitor, identify, and address any potentialcrisis, they are better equipped to maintain financial and economic stability in Lebanon.