Construction and prediction of China's financial stress index based on the A-E-L coupling perspective

Abstract

As economic globalisation and financial liberalisation continue to develop, domestic and international shocks have increased the pressure on China's financial system. To this end, this paper constructs the China Financial Stress Index (CFSI) to analyse China's financial situation. This paper selects 10 representative indicators of the banking, bond, foreign exchange, real estate and insurance markets for the period 2011from 2021. Based on the dimensionality reduction of the indicators, the paper uses the hierarchical analysis method (AHP) and the entropy weighting method (EWM) to assign weights, and couples them with the Lagrange multiplier method to obtain the China Financial Stress Index, and finally uses the long and short-term memory network model (LSTM) to forecast. The results show that the CFSI constructed in this paper can better portray the dynamic financial stress situation in China, and the overall financial stress in China can be divided into three trends.