Research On Systemic Financial Risk Of China Based On The Financial Conditions Index

In 2008,the US sub-prime mortgage crisis and the global financial crisis broke out,which not only had a great impact on China's financiall market and made the stock market fall sharply,and also had bad influence on the real economy of China.Under the background of financial liberalization and economic monetization,systemic risk of financial market has been accumulating,and financial market has much more effects on the real economy.As a result,financial security has become the core of the national economic security,and effective measure of systemic financial risk can ensure the financial security.Based on the study of systemic financial risk measurements,this paper measures systemic financial risk of China by constructing financial conditions index(FCI).This paper screens the variables of FCI by using random forest model,which improves the validity-and accuracy of the results and increases the objectivity of the variables selection.Random forest model chooses the weighted average interest rate of inter-bank market 3-month bond pledged repo,real estate climate index,M2,nominal effective exchange rate and the shenzhen component index from 18 alternative indicators to construct financial conditions index.Considering China ' s financial market has always been in the changing economic environment,the traditional static empowerment method cannot fully reflect the financial market conditions in different periods of time,so this paper uses the time-varying parameter vector auto-regressive model(TVP-VAR model)to construct time-varying financial conditions index.In this paper,we get the conclusion that based on time-varying parameter vector auto-regressive model,the dynamic empowerment financial conditions index including interest rate,real estate price,money supply,exchange rate and stock price can effectively reflect the actual financial market conditions.Besides,we can measure the systemic financial risk and make early warning of financial crisis by observing changes of financial conditions index.