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Measures of Financial Stability in Macedonia

Author

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  • Magdalena Petrovska

    (National Bank of the Republic of Macedonia)

  • Elena Mucheva Mihajlovska

    (National Bank of the Republic of Macedonia)

Abstract

This paper aims at reviewing the work done towards developing quantitative measures of financial stability in Macedonia. The approach to the development of these measures concerns the macro-prudential dimension of financial stability. Constructing a single indicator to indicate the level of stability of the financial system is a very difficult task given the complex nature of the financial system and the existence of numerous interactions between financial market participants, non-financial sectors and financial institutions. Our empirical work started with constructing an aggregate banking stability indicator as an attempt to assess the risks to financial stability by focusing on a set of key financial soundness indicators of banks. But given the complex interactions of different elements of the financial system among themselves and the real economy, from the analysis of an early warning indicator to monitor the state of the banking system, the analytical focus has been shifted towards a broader system-wide assessment of risks to the financial markets, institutions and infrastructure. In other words, we developed a financial conditions index which provides a signal of financial stress and broad coverage of the areas that could indicate it. Both composite measures of financial stability can be used to gauge the build-up of imbalances in the system even in the absence of extreme events. In addition, we also demonstrate that it is possible to use our financial measures to improve, although only marginally, upon forecasts of measure of economic activity over short horizon.

Suggested Citation

  • Magdalena Petrovska & Elena Mucheva Mihajlovska, 2013. "Measures of Financial Stability in Macedonia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 2(3), pages 85-110.
    • Handle: RePEc:cbk:journl:v:2:y:2013:i:3:p:85-110
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    References listed on IDEAS

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    Cited by:

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    2. Katarzyna Kubiszewska, 2018. "Interdependence of Ratios in Banking Stability Pentagon (Wspolzaleznosc wskaznikow w Pieciokacie Stabilnosci Bankowej)," Research Reports, University of Warsaw, Faculty of Management, vol. 2(28), pages 65-79.
    3. Matteo Foglia & Eliana Angelini, 2019. "An explorative analysis of Italy banking financial stability," Economics Bulletin, AccessEcon, vol. 39(2), pages 1294-1308.
    4. Paola Bongini & Małgorzata Iwanicz-Drozdowska & Paweł Smaga & Bartosz Witkowski, 2018. "In search of a measure of banking sector distress: empirical study of CESEE banking sectors," Risk Management, Palgrave Macmillan, vol. 20(3), pages 242-257, August.
    5. Lin Zhu & Jian He, 2024. "China financial stability and asymmetric implications for economic stability," Economic Change and Restructuring, Springer, vol. 57(1), pages 1-29, February.
    6. Akosah, Nana & Loloh, Francis & Lawson, Natalia & Kumah, Claudia, 2018. "Measuring Financial Stability in Ghana: A New Index-Based Approach," MPRA Paper 86634, University Library of Munich, Germany.
    7. Gang Li & Ehsan Elahi & Xingshuai Wang, 2023. "Population age structure, asset price, and financial stability," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2041-2056, June.
    8. Djebali Nesrine, 2023. "Does governance matter for bank stability? “MENA region case”," Journal of Asset Management, Palgrave Macmillan, vol. 24(4), pages 312-328, July.
    9. Mirna Dumičić, 2015. "Financial Stability Indicators – the Case of Croatia," Working Papers 43, The Croatian National Bank, Croatia.
    10. Vodová,Pavla Klepková & Pale?ková,Iveta & Stavárek,Daniel, 2023. "Banking Stability and Financial Conglomerates in European Emerging Countries," Cambridge Books, Cambridge University Press, number 9781009095112, October.
    11. Mais Sha'ban & Claudia Girardone & Anna Sarkisyan & Thankom Arun, 2023. "On the relationship between financial inclusion and bank performance," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 52(3), November.
    12. Samer A.M. AL-Rjoub, 2021. "A financial Stability Index for Jordan," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(2), pages 157-178.
    13. Abayomi Oredegbe, 2022. "Competition and Banking Industry Stability: How Do BRICS and G7 Compare?," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 21(1), pages 7-31, March.
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    15. Patnaik, Ila & Mittal, Shalini & Pandey, Radhika, 2019. "Examining the trade-off between price and financial stability in India," Working Papers 19/248, National Institute of Public Finance and Policy.

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    More about this item

    Keywords

    Banking Stability Index; Banking Sector’s Financial Strength; Financial Conditions Index; Financial Stability; Principal Component Analysis;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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