Today, the Reserve Bank of India placed on its website a Working Paper titled “Measuring Financial Stress in India” under the Reserve Bank of India Working Paper Series1. The paper is authored by Manjusha Senapati and Rajesh Kavediya. This paper focuses on the construction of financial stress indices for the Indian financial system using market-based indicators and three different aggregation methods. The paper finds that these indices provide useful information, which is not captured by the market indicators, on the stress build-up in the financial system. The financial stress indices developed in this paper showed a negative correlation with the Index of Industrial Production (IIP) and can be employed to predict real economic activity. The proposed financial stress indices are also found to be useful in dating past stress episodes in the Indian economy. Ajit Prasad Director Press Release: 2020-2021/369 | |