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In this paper we construct a “wavelet-based” early warning indicator for the IMF financial stress index for advanced economies (FSI-AE) developed in Cardarelli et al. (Financial stress, downturns, and recoveries. IMF Working Papers 09/100, International Monetary Fund, Washington, 2009). Specifically, for each country of the sample we construct a “wavelet-based” early warning indicator of financial stress by selecting, among the individual indicators used in the construction of the IMF financial stress index, those indicators displaying the best leading performance on a “scale-by-scale” basis. The leading properties of each country’s “wavelet-based” early warning indicator for its corresponding financial stress index are evaluated using univariate statistical criteria and a pseudo out-of-sample forecasting exercise. The findings indicate that the “wavelet-based” early warning composite indicator largely outperforms …