We extend the conventional approach to the construction of financial stress indices (FSI) for emerging economies proposed by Balakrishnan et al. (2011). Based on the principal component analysis, our index accounts for developments in the residential real estate market, adopts distinctive indicators for the banking sector and sovereign debt risks, covering the period from February 2008 to September 2015 for 14 emerging economies. The FSIs accurately capture the periods of impaired financial intermediation. The hierarchical cluster analysis identifies five country groups, revealing similarities in the national structures of financial stress. We find an adverse impact of financial stress on economic activity in 9 countries. A Bayesian VAR model is also specified to test for cross-country spillovers of financial stress.
Stolbov, M., & Shchepeleva, M. (2016). Financial stress in emerging markets: Patterns, real effects, and cross-country spillovers. Review of Development Finance, 6(1), 71–81. https://doi.org/10.1016/j.rdf.2016.05.004