We propose factor-based out-of-sample forecast models for the financial stress index and its 4 sub-indices developed by the Bank of Korea. We employ the method of the principal components for 198 monthly frequency macroeconomic data to extract multiple latent factors that summarize the common...

We present a factor augmented forecasting model for assessing the financial vulnerability in Korea. Dynamic factor models often extract latent common factors from a large panel of time series data via the method of the principal components (PC). Instead, we employ the partial least squares (PLS)...