Macroeconomic and Financial Soundness Indicators: An Empirical Investigation, Issues 2007-2115
This paper analyzes the relationship between selected macroeconomic and financial soundness indicators (FSIs) using a newly assembled panel dataset of FSIs for 96 countries covering the period 1998-2005. The analysis covers key macroeconomic indicators and FSIs of capital adequacy, asset quality and profitability. The paper finds that FSIs fluctuate strongly with both the business cycle and the inflation rate. Short term interest rates and the real exchange rate also emerge as important determinants. There is also a considerable degree of heterogeneity in the relationship between macroeconomic indicators and FSIs across the sample of countries. Several country and industry specific characteristics including country income levels, financial depth, market concentration, and the quality of regulatory supervision are found to be significant in explaining this cross country heterogeneity.
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Macroeconomic and Financial Soundness Indicators: An ..., Issues 2007-2115
Limited preview - 2007
2SLS annual change asset quality average bank capital ratio bank deposits banking crises Banking Supervision banking system Basel Core Principles bcp*bcycle bcycle business cycle capital adequacy ratios capital to assets capital to risk coefficients Contemporaneous Correlations country specific cross country differences cycle and capital degree of heterogeneity dependent variables deposits to GDP Differenced dynamic panel data econometric effective exchange rate endogeneity estimators explanatory variables financial sector Financial Soundness Indicators financial system fixed effects fs_size*bcycle FSI data groups or fixed impact income income*bcycle instrumental variable int_r interaction terms International Monetary Fund loans to total macroeconomic variables MGCP non-performing loans NPLs performing loans Podpiera quality of banking random effects random effects estimator ratio of bank real effective exchange Real GDP Growth real interest rates reer Regulatory capital relationship between FSIs relationship between macroeconomic return on assets risk-weighted assets sample of countries target capital ratio total assets total loans