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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.
    • Handle: RePEc:ces:ceswps:_1015
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    References listed on IDEAS

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    6. 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.
    7. Ramon Moreno, 1997. "Dealing with currency speculation in the Asian Pacific Basin," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue apr11.
    8. Frederic S. Mishkin, 1996. "Understanding Financial Crises: A Developing Country Perspective," NBER Working Papers 5600, National Bureau of Economic Research, Inc.
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    Cited by:

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    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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