The Federal Reserve Bank of St. Louis publishes a weekly index of financial stress (FRED code: STLFSI) that summarizes strains in financial markets, including liquidity problems.
For the period beginning in 1994, plot this index and, as a second line, the difference between the Baa bond yield (FRED code: WBAA) and the 10-year U.S. Treasury bond yield(FRED code: WGS10YR). Does the index STLFSI provide an early warning of stress?
(Hints:At the FRED Web site, select "Data Tools" and then "Create Your Own Graph." Type in the code for the Baa bonds(FRED code: WBAA). Select "Add Data Series" and the "Line 1" button and insert the code for the Treasury bond yield(FRED code: WGS10YR). At the formula box,type in "a-b" (without the quotes) and then select "Redraw Graph." Go again to "Add Data Series" and type in the code for the financial stress index (FRED code: STLFSI). Click "Copy to All Lines" next to the Observation Date Range for this index. Finally, select "Redraw Graph.")