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A GPS navigator to monitor risks in emerging economies: the vulnerability dashboard

Author

Listed:
  • Irma Alonso

    (Banco de España)

  • Luis Molina

    (Banco de España)

Abstract

This paper presents a simple, transparent and model-free framework for monitoring the build-up of vulnerabilities in emerging economies that may affect financial stability in Spain through financial, foreign direct investment or trade linkages, or via global turbulences. The vulnerability dashboards proposed are based on risk percentiles for a set of 34 key indicators according to their historical and cross-section frequency distributions. The framework covers financial market variables, macroeconomic fundamentals –which are grouped into real, fiscal, banking and external variables– and institutional quality and political indicators. This methodology is a valuable complement to other existing tools such as the Basel credit-to-GDP gap and vulnerability indices.

Suggested Citation

  • Irma Alonso & Luis Molina, 2021. "A GPS navigator to monitor risks in emerging economies: the vulnerability dashboard," Occasional Papers 2111, Banco de España.
    • Handle: RePEc:bde:opaper:2111
    as

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    File URL: https://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosOcasionales/21/Files/do2111e.pdf
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    References listed on IDEAS

    as
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    7. Irma Alonso & Luis Molina, 2019. "The SHERLOC: an EWS-based index of vulnerability for emerging economies," Working Papers 1946, Banco de España.
    8. Steven B. Kamin & John Schindler & Shawna Samuel, 2007. "The contribution of domestic and external factors to emerging market currency crises: an early warning systems approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 12(3), pages 317-336.
    9. Oliver Röhn & Aida Caldera Sánchez & Mikkel Hermansen & Morten Rasmussen, 2015. "Economic resilience: A new set of vulnerability indicators for OECD countries," OECD Economics Department Working Papers 1249, OECD Publishing.
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    Citations

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    Cited by:

    1. Alonso-Alvarez, Irma & Molina, Luis, 2023. "How to foresee crises? A new synthetic index of vulnerabilities for emerging economies," Economic Modelling, Elsevier, vol. 125(C).
    2. International Economics and Euro Area Department, 2021. "Report on the Latin American economy. First half of 2021. Outlook, vulnerabilities and policy space," Economic Bulletin, Banco de España, issue 2/2021.
    3. Departamento de Economía Internacional y Área del Euro, 2021. "Report on the Latin American Economy. Second half of 2021. Outlook, vulnerabilities and policy space," Economic Bulletin, Banco de España, issue 4/2021.
    4. Carmen Broto & Mariya Melnychuk, 2022. "Structural risk indicators for the Spanish banking sector," Financial Stability Review, Banco de España, issue Autumn.
    5. Carmen Broto & Mariya Melnychuk, 2022. "Structural risk indicators for the Spanish banking sector," Revista de Estabilidad Financiera, Banco de España, issue NOV.

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    More about this item

    Keywords

    emerging economies; crisis; vulnerabilities; heat maps; risks;
    All these keywords.

    JEL classification:

    • F01 - International Economics - - General - - - Global Outlook
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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