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How to Measure Financial (In)Stability in Emerging Europe?

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  • Petr Jakubik

    ()
    (European Insurance and Occupational Pensions Authority (EIOPA), Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

  • Tomas Slacik

    ()
    (Oesterreichische Nationalbank, Foreign Research Division)

Abstract

The importance of assessing financial stability in emerging Europe has increased rapidly since the recent financial crisis. Against this background, in the present paper we contribute to the existing literature in a twofold way: First, by using a broad range of indicators from money, bond, equity and foreign exchange markets, we develop a comprehensive financial instability index (FII) that gauges the level of financial market stress in some key Central, Eastern and Southeastern European (CESEE) countries. In a second step, we perform a panel estimation to investigate which macroprudential indicators that cover both internal and external imbalances explain the evolution of our FII over the past more than 15 years. Our analysis suggests that both the levels and changes of some indicators (such as credit growth and the level of private sector indebtedness) play an important role for financial stability. Moreover, we find that the impact of some key indicators on financial (in)stability is nonlinear and varies over time depending on market sentiment.

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File URL: http://ies.fsv.cuni.cz/sci/publication/show/id/4879/lang/cs
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Bibliographic Info

Paper provided by Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies in its series Working Papers IES with number 2013/13.

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Length: 20pages
Date of creation: Sep 2013
Date of revision: Sep 2013
Handle: RePEc:fau:wpaper:wp2013_13

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Keywords: Financial stability; crisis; macroprudential framework; emerging Europe; external and internal imbalances;

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