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Assessing Romanian financial sector stability: the importance of the international economic climate

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  • Albulescu, Claudiu Tiberiu

Abstract

The aim of this paper is to develop an aggregate stability index for the Romanian financial system. The index which is meant to enhance the set of analysis used by the central bank to assess the financial stability accurately reflects the financial stability dynamics and the periods with financial turbulences during 1997-2007 in Romania. By the application of a technique which enables the measurement of the components’ contribution to the aggregate index volatility, we show that some individual stability indicators require a close monitoring by the authorities in order to detect the instability periods. Several attempts to set up a financial stability aggregate index can be found in the literature, but none of these studies took into consideration the spillover effect between different financial markets. One of the contributions of our paper is the introduction within the aggregate index of an indicator capable of highlighting the international economic climate. The deterioration of the world economic climate can represent the background for the contagion phenomenon. The outcome of the study shows an improvement of the Romanian financial stability during the analysed period. The aggregate index volatility also decreased starting with 1999. The financial vulnerability and financial soundness indicators have a significant contribution to the volatility of the aggregate index in the periods foregoing the crisis appearance. On the contrary, the volatility of the world economic climate indicators is reduced before the crisis, rising immediately after its burst out.

Suggested Citation

  • Albulescu, Claudiu Tiberiu, 2008. "Assessing Romanian financial sector stability: the importance of the international economic climate," MPRA Paper 16581, University Library of Munich, Germany, revised 12 Feb 2009.
    • Handle: RePEc:pra:mprapa:16581
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    References listed on IDEAS

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    1. 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.
    2. Adam Gersl & Jaroslav Hermanek, 2007. "Financial Stability Indicators: Advantages and Disadvantages of their Use in the Assessment of Financial System Stability," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2006, chapter 0, pages 69-79, Czech National Bank.
    3. Mark Illing & Ying Liu, 2003. "An Index of Financial Stress for Canada," Staff Working Papers 03-14, Bank of Canada.
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    Cited by:

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    2. Deimantė Teresienė & Greta Keliuotytė-Staniulėnienė & Rasa Kanapickienė, 2021. "Sustainable Economic Growth Support through Credit Transmission Channel and Financial Stability: In the Context of the COVID-19 Pandemic," Sustainability, MDPI, vol. 13(5), pages 1-34, March.

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    More about this item

    Keywords

    financial stability; quantitative methods for assessing systemic stability; aggregate financial stability index; world economic climate index;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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