Macroeconomic and Financial Soundness Indicators: An Empirical Investigation
IMF Working Papers, May 1, 2007
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Bibliographic details
- Authors: Rita Babihuga
- Published: May 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451866797.001
Summary
- Analysis uses a newly assembled panel dataset of FSIs for 96 countries covering the period 1998-2005.
- Examines key macroeconomic indicators and FSIs of capital adequacy, asset quality and profitability.
- Finds strong fluctuations of FSIs with both the business cycle and the inflation rate.
- Identifies short term interest rates and the real exchange rate as important determinants of FSIs.
- Documents considerable heterogeneity in the relationship between macroeconomic indicators and FSIs across countries.
- Finds that country and industry specific characteristics—country income levels, financial depth, market concentration, and the quality of regulatory supervision—are significant in explaining cross-country heterogeneity.
Key Empirical Findings
- FSIs fluctuate strongly with the business cycle.
- FSIs fluctuate strongly with the inflation rate.
- Short term interest rates emerge as important determinants of FSIs.
- The real exchange rate emerges as an important determinant of FSIs.
- There is considerable heterogeneity across countries in how macroeconomic indicators relate to FSIs.
- Country- and industry-specific characteristics that significantly explain cross-country heterogeneity include:
- Country income levels.
- Financial depth.
- Market concentration.
- Quality of regulatory supervision.
Subjects and Keywords
- Subjects: Banking, Business cycles, Capital adequacy requirements, Financial soundness indicators, Nonperforming loans.
- Keywords: capital, exchange rate, WP.
Research Context and Use
- This Working Paper describes research in progress intended to elicit comments and further debate.
- Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.
IMF Working Paper: Macroeconomic and Financial Soundness Indicators: An Empirical Investigation (Working Paper No. 2007/115) by Rita Babihuga.
Content in this bundle
- 4. Profitability