Posts by ufmlabs

  The yield curve indicator was designed to anticipate a crisis using the theory of the business cycle as a deterioration of liquidity. A crisis can be anticipated when the yield curve begins to flatten, or is flat. Under normal market conditions, the yield curve behaves like this: as the maturity of a financial asset becomes greater, the yield increases. The indicator has two components: first, the percentage change in the slope (upwards or downwards) during the previous period; second, the calculated difference between the compounded slope of the entire interest rate and the continuous compound interest rate1 It is important to note that the slopes of the yield curves were calculated using a semi-logarithmic model. The compound interest rate is a geometric average that equalizes the starting and end points passing through intermediate points. The indicator was defined with a priori probabilities with a specific weight of 50% each,…

We propose the liquidity gap indicator as a way to measure the maturity mismatch caused by financial intermediation. This indicator uses the following ratio: The indicator shows the relationship between the proportions of short-term and long-term liabilities on one hand, and short-term and long-term assets on the other. In the absence of any maturity mismatch, we would expect the indicator to be close to one. This would indicate that the cash outflows committed to the short term are offset by short-term cash inflows. In other words, long-term assets are financed with long-term liabilities. However, this indicator usually shows an elevated numerator and a smaller denominator, signaling that the proportion of short/long liabilities is much higher than the short/long assets ratio. This is a sign that the financial sector is trading on maturities. In fact, in the historical data series for the Eurozone financial system we see that the short-term liabilities…

We propose several additional indicators to characterize the time curve arbitrage carried out by the financial system. This mismatch is the main cause of inefficiency in the allocation of productive resources provided by financial intermediaries. The first one is the mismatch indicator. It is formed by the sum of the points in which the slope of the yield curve is negative, i.e., the sum of all terms in which there is a greater interest in a shorter period. We used data from the European Central Bank, with monthly deficiency and monthly performance up to ten years Source: Original arrangement compiled from ECB data. We also propose using the long- vs short-term spread. This indicator analyzes the difference in spread between a risk-free bond at three months and its analogue at three years. The tension caused by liquidity struggles is reflected here. When the indicator is close to zero or becomes…