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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.

Suggested Citation

  • Biswa N. Bhattacharyay, 2003. "Towards a Macro-Prudential Leading Indicators Framework for Monitoring Financial Vulnerability," CESifo Working Paper Series 1015, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1015
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    References listed on IDEAS

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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. 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 444-448, May.
    3. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
    4. 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.
    5. 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.
    6. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-325, August.
    7. 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.
    8. 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.
    9. 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.
    10. International Monetary Fund, 2002. "Financial Soundness Indicators; Analytical Aspects and Country Practices," IMF Occasional Papers 212, International Monetary Fund.
    11. Ramon Moreno, 1997. "Dealing with currency speculation in the Asian Pacific Basin," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue apr11.
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    Cited by:

    1. 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.
    2. 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.
    3. Matkovskyy, Roman & Bouraoui, Taoufik & Hammami, Helmi, 2016. "Analysing the financial strength of Tunisia: An approach to estimate an index of financial safety," Research in International Business and Finance, Elsevier, vol. 38(C), pages 485-493.
    4. Kanas, Angelos & Vasiliou, Dimitrios & Eriotis, Nikolaos, 2012. "Revisiting bank profitability: A semi-parametric approach," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 990-1005.

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