4 An early-warning system The Bank of Canada has developed a financial stress indicator, the FSI, which uses a number of domestic variables to measure the degree of financial stress in the economy. 5 As you would expect, the FSI is now showing record levels of stress. It is correlated with how you all probably feel.
While this indicator does an excellent job of measuring stress in real time, our objective is to develop empirical measures that could forewarn of potential financial crises. In other words, given that the FSI accurately measures financial stress, what accurately predicts changes in the FSI?