Defining Financial Stability
IMF Working Papers, October 1, 2004
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Bibliographic details
- Authors: Garry J. Schinasi
- Published: October 1, 2004
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451859546.001
Summary and core definition
- Main objective: propose a definition of financial stability that has practical and operational relevance.
- Financial stability is defined in terms of its ability to:
- facilitate and enhance economic processes,
- manage risks, and
- absorb shocks.
- Financial stability is considered a continuum: changeable over time and consistent with multiple combinations of the constituent elements of finance.
Key findings and conceptual implications
- Financial stability should be evaluated by how well the financial system:
- supports economic processes,
- controls and allocates risk, and
- absorbs adverse shocks without impairing core functions.
- Viewing financial stability as a continuum implies:
- it is not a binary state (stable/unstable), and
- multiple combinations of constituent elements of finance can produce different positions on the stability continuum.
Practical implications for policy analysis and analytical frameworks
- The paper discusses several practical implications of the proposed definition that should be considered when:
- using the definition for policy analysis, or
- developing an analytical framework.
- Implications include incorporating the continuum perspective and focusing on the financial system’s functional capacities (facilitation of economic processes, risk management, shock absorption) when designing metrics and policy tools.
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- _wp04187 — References