EARLINESS.eu · European early warning system for systemic risk.
Horizon 2020 — Marie Skłodowska-Curie Actions
- Duration
- 2016-06-01 → 2018-05-31
- EU contribution
- €171,461
- Participants
- 1
- Scheme
- MSCA-IF-EF-ST
Lines connect the coordinator with its partners.
Results in brief
European early warning system for systemic risk.
The European financial crisis posed a serious challenge to the stability and prosperity of the euro area and represented a real threat for growth prospects in Europe and for its integrity. The sovereign European crisis started in the second half of 2011, after the global financial crisis (GFC) highlighted the need of an appropriate warning mechanism to prevent financial stability. The main challenge lies in the realization of a sophisticated system to detect and measure marginal changes in each source of systemic risk. Systemic events have a direct impact on the real economy causing potentially unsustainable costs for governments and the international community in terms of GDP (cost of bank bailouts) and in social terms (negative externalities in the economy). Literature proposes several indicators to measure systemic risk; these measures revealed useful predictive information about the probability of future macroeconomic downturns. EARLINESS.eu aims to identify and signal European economic vulnerabilities to allow policy makers to intervene with proper actions. Different approaches have been adopted in measuring the source of systemic risk resulting in new measures and early/nowcasting warning signals. Moreover, the project contributed to a systemic risk platform for the analysis and visualization of the European and Global financial system which is available to scholars, practitioners and the public. This platform allows to analyze through visualization, explanation and download access to the indicators the systemic risk in the Euro and the Global area. The project has been involved in several dissemination activities such as conferences and workshops related to finance, financial econometrics and statistical methods with the presence of researchers from universities and central banks.
Data: CORDIS, © European Union
Project objective
EARLINESS.eu proposes a new European early warning system (EWS), able to identify and signal economic vulnerabilities in order to allow policy makers to intervene in a timely manner. The ongoing European financial crisis poses a serious challenge to the stability of the euro area and growth prospects in Europe. The aim of the EARLINESS.eu project is to implement a EWS for systemic risk to prevent and mitigate financial instability by exploiting the linkages among the financial markets and the real economy. Given the potentially high and unsustainable costs caused by systemic crises, it is of fundamental importance to establish a comprehensive system of early warning signals and indicators to monitor them. Recent studies suggest that empirical analysis should focus on the macroeconomic and financial shocks transmission across countries, allowing for nonlinear propagation of these shocks. The innovative purpose of EARLINESS is to fill this gap by modelling nonlinear interactions between the financial market and the macroeconomic system. The main challenge is the realization of a comprehensive system able to detect and measure each marginal change in the sources of systemic risk by developing an innovative building block structure. A novel Dynamic Quantile Factors model is introduced to extract the latent signal of systemic risks at micro and macro level from a panel of institutions belonging to the European area and partner countries. The project uses state-of-the-art systemic risk measures and integrates new methodologies in financial econometrics, systemic risk measurement and big data analysis tools. According to the Macroprudential Research Network of the ECB, the implementation of macroprudential policy is still at an early stage and much effort is needed to support policymakers in designing mechanisms for prudential tools. The EARLINESS project can deliver an important contribution to this.
Original text from CORDIS.
Participants
- GESELLSCHAFT FUR KAPITALMARKTFORSCHUNG EV · FRANKFURT AU MAINCoordinatorGermany
Links
Data: CORDIS, © European Union