Financial Stress of Singapore in the Time of COVID-19

ABSTRACT

This study extends the existing literature on the use of financial stress index (FSI) to assess the financial condition of Singapore during the COVID-19 crisis. Specifically, a high-frequency FSI is constructed to provide timely analysis which is imperative given the pandemic is still lingering across the globe. There are two main uses of the FSI. First, we use FSI to detect episodes of financial stress and investigate whether Singapore's financial system is facing frailty during the pandemic. Second, we use a vector autoregression (VAR) model to analyse the comovement between FSI, COVID-19 indicators, and global financial factors, which shed light on the main drivers underlying Singapore's financial stress since the COVID-19 outbreak. Our findings suggest that (1) excessive stresses were detected during 9 March-21 April 2020, a period that corresponded to the evolution of COVID-19 into a global pandemic as well as the beginning of Singapore's Circuit Breaker period;and (2) the dynamics of Singapore's FSI is more due to the global financial factors than it is to the severity of the domestic COVID-19 condition. © 2022 by World Scientific Publishing Co. Pte. Ltd.