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Towards a Macro-Prudential Leading Indicators Framework for Monitoring Financial Vulnerability

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  • Biswa N. Bhattacharyay

Abstract

The 1997 Asian financial crisis has revealed the limitations of the current state of monetary and financial monitoring system in most Asian countries in comprehensively addressing financial and monetary problems and issues. This paper attempts to propose a macro-prudential indicators (MPI) framework for monitoring vulnerability of financial markets. A literature survey on studies leading indicators has been presented. An illustrative and simple framework for analysis and interpretation of core set of 22 leading indicators (that were identified from 67 commonly agreed Asian Development Bank Indicators for selected Asia-Pacific countries, namely Fiji, Indonesia, the Philippines, Thailand, Viet Nam, and Taiwan, Province of China ) has been presented using annual time-series data for the afore-mentioned countries. A correlation and volatility analysis of Thailand’s annual and quarterly data (1994-2002) has also been performed in order to propose a simple methodology for constructing benchmarks for early warning signals and for developing a composite indicators. This above analysis carried out in this paper highlights the usefulness of MPIs as a tool for monitoring financial vulnerability.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1015.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1015

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  1. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
  2. Corsetti, Giancarlo & Pesenti, Paolo & Roubini, Nouriel, 1999. "What caused the Asian currency and financial crisis?," Japan and the World Economy, Elsevier, vol. 11(3), pages 305-373, October.
  3. International Monetary Fund, 2002. "Financial Soundness Indicators," IMF Occasional Papers 212, International Monetary Fund.
  4. E Philip Davis, 1999. "Financial data needs for macroprudential surveillance - What are the key indicators of risks to domestic financial stability?," Lectures, Centre for Central Banking Studies, Bank of England, number 2, November.
  5. Kaminsky, Graciela L & Reinhart, Carmen M, 1998. "Financial Crises in Asia and Latin America: Then and Now," American Economic Review, American Economic Association, vol. 88(2), pages 444-48, May.
  6. Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
  7. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
  8. Ramon Moreno, 1997. "Dealing with currency speculation in the Asian Pacific Basin," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue apr11.
  9. Jeffrey D. Sachs & Aaron Tornell & Andrés Velasco, 1996. "Financial Crises in Emerging Markets: The Lessons from 1995," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 147-216.
  10. Salvatore, Dominick, 1999. "Could the Financial Crisis in East Asia Have Been Predicted?," Journal of Policy Modeling, Elsevier, vol. 21(3), pages 341-347, May.
  11. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
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Cited by:
  1. Casu, Barbara & Clare, Andrew & Saleh, Nashwa, 2011. "Towards a new model for early warning signals for systemic financial fragility and near crises: an application to OECD countries," MPRA Paper 37043, University Library of Munich, Germany.
  2. Heun, Michael & Schlink, Torsten, 2004. "Early warning systems of financial crises: implementation of a currency crisis model for Uganda," Frankfurt School - Working Paper Series 59, Frankfurt School of Finance and Management.

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