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Indicator and boundaries of financial stability

  • Jan Willem van den End

This paper presents an information variable for financial stability consisting of a composite index and its related critical boundaries. It is an extension of a Financial Conditions Index with information on financial institutions. The indicator is bounded, on one side, by the instability boundary which depends on the solvency buffers of the institutions and the stress level on financial markets. On the other side, the imbalances boundary signals when extreme imbalances accumulate. This concept is applied to the Netherlands and six OECD countries which experienced a financial crisis.

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File URL: http://www.dnb.nl/binaries/Working%20Paper%2097_tcm46-146754.pdf
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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 097.

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Date of creation: Apr 2006
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Handle: RePEc:dnb:dnbwpp:097
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Web page: http://www.dnb.nl/en/

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  1. Ben Bernanke & Mark Gertler, 2000. "Monetary Policy and Asset Price Volatility," NBER Working Papers 7559, National Bureau of Economic Research, Inc.
  2. Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
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  4. Elke Hanschel & Pierre Monnin, 2005. "Measuring and forecasting stress in the banking sector: evidence from Switzerland," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 431-49 Bank for International Settlements.
  5. Mayes, David G. & Viren , Matti, 2002. "Financial Conditions Indexes," Economia Internazionale / International Economics, Camera di Commercio di Genova, vol. 55(4), pages 521-550.
  6. John Y. Campbell & Glen B. Taksler, 2002. "Equity Volatility and Corporate Bond Yields," Harvard Institute of Economic Research Working Papers 1945, Harvard - Institute of Economic Research.
  7. Michael D. Bordo & Michael J. Dueker & David C. Wheelock, 2000. "Aggregate Price Shocks and Financial Instability: An Historical Analysis," NBER Working Papers 7652, National Bureau of Economic Research, Inc.
  8. Alberto Montagnoli & Oreste Napolitano, 2004. "Financial Condition Index and interest rate settings: a comparative analysis," Money Macro and Finance (MMF) Research Group Conference 2004 1, Money Macro and Finance Research Group.
  9. Jan Kakes & Cees Ullersma, 2010. "Financial Acceleration of Booms and Busts," Credit and Capital Markets, Credit and Capital Markets, vol. 43(3), pages 321–337.
  10. Joe Peek & Eric Rosengren, 1991. "The capital crunch: neither a borrower nor a lender be," Working Papers 91-4, Federal Reserve Bank of Boston.
  11. Gropp, Reint & Vesala, Jukka & Vulpes, Giuseppe, 2006. "Equity and Bond Market Signals as Leading Indicators of Bank Fragility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(2), pages 399-428, March.
  12. Charles Goodhart & Boris Hofmann, 2001. "Asset prices, financial conditions and the transmission of monetary policy," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  13. Jan Willem van den End & Mostafa Tabbae, 2005. "Measuring Financial Stability: Applying the MfRisk Model to the Netherlands," DNB Working Papers 030, Netherlands Central Bank, Research Department.
  14. Mark Illing & Ying Liu, 2003. "An Index of Financial Stress for Canada," Working Papers 03-14, Bank of Canada.
  15. Andrew J. Filardo, 2001. "Should monetary policy respond to asset price bubbles? : some experimental results," Research Working Paper RWP 01-04, Federal Reserve Bank of Kansas City.
  16. Alexander Ludwig & Torsten Sløk, 2002. "The Impact of Changes in Stock Prices and House Priceson Consumption in OECD Countries," IMF Working Papers 02/1, International Monetary Fund.
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