The past recession highlighted the financial sector’s role in the economy, specifically that its health can affect economic fluctuations. It is not as easy to see how well this sector is doing now, as there are many, many indicators. (The FRED database is testimony to that.) So it is useful to look for a summary indicator, and three Federal Reserve Banks provide one: The Cleveland, Kansas City, and St. Louis Feds each offer their own financial index to measure the stress or uncertainty within the financial sector. Each draws on different data, uses different methodologies, and emphases different factors. Of course, the indexes can incorporate only tangible information to measure something more or less intangible, so they are going to be imperfect. Still, as the graph shows, they correlate remarkably well.
How this graph was created: Search for “financial stress index” and select the three series. Click “add to graph.”
Suggested by Christian Zimmermann
View on FRED, series used in this post: