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Towards a Macroprudential Surveillance and Remedial Policy Formulation System for Monitoring Financial Crisis

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  • Biswa N. Bhattacharyay

Abstract

Several developing economies witnessed a large number of systemic financial and currency crises since the 1980s which resulted in severe economic, social, and political problems. The devastating impact of the 1982 and 1994-95 Mexican crises, the 1997-98 Asian financial crisis, the 1998 Russian crisis and the ongoing financial crisis of 2008-2009 suggest that maintaining financial sector stability through reduction of vulnerability is highly crucial. The world is now witnessing an unprecedented systemic financial crisis originated from USA in September 2008 together with a deep worldwide economic recession, particularly in developed countries of Europe and North America. This calls for devising and using on a regular basis an appropriate and effective monitoring and policy formulation system for detecting and addressing vulnerabilities leading to crisis. This paper proposes a macroprudential/financial soundness monitoring, analysis and remedial policy formulation system that can be used by most developing countries with or without crisis experience as well as developed countries with limited data. It also discusses a process for identifying, and compiling a set of leading macroprudential indicators/financial soundness indicators. An empirical illustration using Philippines data is presented.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2803.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2803

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Keywords: economic and financial vulnerability; macroprudential indicators and financial soundness indicators analysis; macroprudential surveillance and policy; developing countries; financial sector; currency and financial crises; Early Warning Models; Stress Test;

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References

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  1. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
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  3. 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.
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  5. International Monetary Fund, 2002. "Financial Soundness Indicators," IMF Occasional Papers 212, International Monetary Fund.
  6. Reinhart, Carmen & Goldstein, Morris & Kaminsky, Graciela, 2000. "Assessing financial vulnerability, an early warning system for emerging markets: Introduction," MPRA Paper 13629, University Library of Munich, Germany.
  7. International Monetary Fund, 2002. "Financial Crises, Poverty, and Income Distribution," IMF Working Papers 02/4, International Monetary Fund.
  8. Agenor, Pierre-Richard, 2001. "Benefits and costs of international financial integration : theory and facts," Policy Research Working Paper Series 2699, The World Bank.
  9. 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.
  10. Michael Bordo & Barry Eichengreen & Daniela Klingebiel & Maria Soledad Martinez-Peria, 2001. "Is the crisis problem growing more severe?," Economic Policy, CEPR & CES & MSH, vol. 16(32), pages 51-82, 04.
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  13. 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.
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  16. Martin Cihak, 2004. "Stress Testing: A Review of Key Concepts," Research and Policy Notes 2004/02, Czech National Bank, Research Department.
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  18. Agenor, Pierre-Richard, 2002. "Does globalization hurt the poor?," Policy Research Working Paper Series 2922, The World Bank.
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Cited by:
  1. Costa Cabral, Nazare, 2010. "Breve guia temático e bibliográfico sobre o estudo da actual crise financeira e económica
    [Short thematic guide to the study of current financial and economic crisis]
    ," MPRA Paper 20743, University Library of Munich, Germany.

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