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Some Financial Stability Indicators for Brazil

Listed author(s):
  • Adriana Soares Sales
  • Waldyr D. Areosa
  • Marta B. M. Areosa

We present a methodology to construct a Broad Financial Stability Indicator (FSIB) based on unobserved common factors and a Specific Financial Stability Indicator (FSIS) for the Brazilian economy combining observed credit, debt and exchange rate markets indicators. Rather than advocate a particular numerical indicator of financial stability, our main goal is methodological. Our indicators, calculated in sample and ex-post, seem to capture three periods of considerably high financial instability in Brazil: (i) the 1998/1999 speculative attack on the Real, (ii) the government transition of 2002/2003 and (iii) the intensification of the 2008/2009 subprime financial crisis triggered by the collapse of the Lehman Brothers. We also propose an alternative methodology that decomposes business cycle fluctuations in two components -- a Financial Factor (FF) and a Real Factor (RF) -- which are identified from co-movements of financial and non-financial variables. The results are similar to the ones pointed out by our FSIB and FSIS measures.

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Paper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 287.

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Date of creation: Jul 2012
Handle: RePEc:bcb:wpaper:287
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  1. Hahm, Joon-Ho & Mishkin, Frederic S. & Shin, Hyun Song & Shin, Kwanho, 2011. "Macroprudential policies in open emerging economies," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 63-114.
  2. Carlos Montoro & Ramon Moreno, 2011. "The use of reserve requirements as a policy instrument in Latin America," BIS Quarterly Review, Bank for International Settlements, March.
  3. Jan Willem van den End, 2006. "Indicator and boundaries of financial stability," DNB Working Papers 097, Netherlands Central Bank, Research Department.
  4. Scott Brave & R. Andrew Butters, 2011. "Monitoring financial stability: a financial conditions index approach," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 22-43.
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