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

Author

Listed:
  • 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.

Suggested Citation

  • Petr Jakubik & Tomas Slacik, 2013. "How to Measure Financial (In)Stability in Emerging Europe?," Working Papers IES 2013/13, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2013.
  • Handle: RePEc:fau:wpaper:wp2013_13
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    File URL: http://ies.fsv.cuni.cz/sci/publication/show/id/4879/lang/cs
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    Keywords

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

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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