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Some Financial Stability Indicators for Brazil

  • 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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File URL: http://www.bcb.gov.br/pec/wps/ingl/wps287.pdf
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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
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Handle: RePEc:bcb:wpaper:287
Contact details of provider: Web page: http://www.bcb.gov.br/?english

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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. Jan Willem van den End, 2006. "Indicator and boundaries of financial stability," DNB Working Papers 097, Netherlands Central Bank, Research Department.
  3. 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.
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