PREDICTING MACROECONOMIC DOWNTURN USING SYSTEMIC RISK MEASURES: EMPIRICAL EVIDENCE OF INDONESIAN FINANCIAL SYSTEM
We extend the research of Allen et al. (2012) and Brownlees and Engle (2016) to research systemic risk. We implement the predictive time series regression to investigate the predictive power of systemic risk measures on the economic downturn that account for predictive horizon one to twelve months a...
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| Format: | Theses |
| Language: | Indonesia |
| Online Access: | https://digilib.itb.ac.id/gdl/view/41529 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | We extend the research of Allen et al. (2012) and Brownlees and Engle (2016) to research systemic risk. We implement the predictive time series regression to investigate the predictive power of systemic risk measures on the economic downturn that account for predictive horizon one to twelve months ahead. We compare the prominent measures of systemic risk consist of of (1) marginal expected shortfall (MES) – Acharya et al. (2016), (2) component expected shortfall (CES) – Banulescu and Dumitrescu (2014), (3) SRISK – Brownlees and Engle (2016), (4) ?CoVaR – Adrian and Brunnermeier (2016), and (5) CATFIN – Allen et al. (2012). We also consider each aggregate measures of systemic risk for different portfolios consists of financial institutions, banks, non-banks of financial institutions, big banks, and small banks to account the discussions whether the financial crisis is driven by the financial institutions or the banks specialness and investigate the size effect of the financial intermediations based on the concept of Too Big to Fail (TBTF). Finally, we choose the measures of systemic risk which have predictive power on the economic downturn as a recommendation for policymakers to construct early warning systems and real-time assessment of systemically important financial institutions (SIFIs). In general, we find the SRISK and CATFIN are the best predictors on the economic downturn. Moreover, the results indicate the systemic risk measures give better predictive power on economic downturn using GDP growth rather than the IP growth as the macroeconomic indicator. Besides, we provide the evidence for the specialness of financial intermediation in Indonesian financial system using the GDP growth as the macroeconomic indicator, and we also find the portfolio of small banks have insignificant predictive power on the economic downturn. |
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