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Detecting And Interpreting Financial Stress In The Euro Area

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Executive Summary

There is a need to find better models and indicators for large disruptive events, not least in order to be more prepared and mitigate their effects. In this paper the authors take a step in this direction and discuss the performance of a financial stress indicator with a specific focus on the euro area. As far as they know, the indicator is the first attempt to develop an indicator of financial stress with a specific focus on the euro area. It is also the first to exploit the information contained in central bank communication to help measure stress in financial markets.

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