{
  "title": "Too Cold, Too Hot, or Just Right? Assessing Financial Sector Development Across the Globe",
  "publication": "IMF Working Papers, March 28, 2013",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/31/too-cold-too-hot-or-just-right-assessing-financial-sector-development-across-the-globe-40441",
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  "summary": "This paper introduces the concept of the financial possibility frontier as a constrained optimum level of financial development to gauge the relative performance of financial systems across the globe.",
  "sections": [
    {
      "heading": "Concept: Financial Possibility Frontier",
      "content": "- Introduces the \"financial possibility frontier\" as a constrained optimum level of financial development to gauge the relative performance of financial systems across the globe.\n- The frontier accounts for structural country characteristics, institutional, and macroeconomic factors that impact financial system deepening."
    },
    {
      "heading": "Methodology: Operationalization and Benchmarking",
      "content": "- Framework is operationalized using a benchmarking exercise.\n- The exercise relates the difference between:\n  - the actual level of financial development, and\n  - the level predicted by structural characteristics,\n  to an array of policy variables."
    },
    {
      "heading": "Key findings and empirical associations",
      "content": "- The benchmarking identifies deviations of actual financial development from the level predicted by structural fundamentals.\n- An overshooting of the financial system significantly beyond levels predicted by its structural fundamentals is associated with credit booms and busts."
    },
    {
      "heading": "Analytical implications and policy relevance",
      "content": "- The financial possibility frontier provides a tool to:\n  - Gauge relative performance of national financial systems conditional on structural context.\n  - Inform assessment of whether financial development is \"too cold,\" \"too hot,\" or \"just right\" relative to fundamentals.\n- Monitoring the gap between actual and predicted financial development can help detect overheating risks linked to credit booms and subsequent busts.\n- Policy attention should focus on the policy variables identified in the benchmarking exercise to address deviations from the frontier and mitigate systemic risk.\n\nAdolfo Barajas, Thorsten Beck, Era Dabla-Norris, and Reza Yousefi. March 28, 2013. IMF Working Paper.\n\n---\n\n Content in this bundle\n\n- wp1381\n  - wp1381 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp1381 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/too-cold-too-hot-or-just-right-assessing-financial-sector-development-across-the-globe-40441"
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    "Authors: Adolfo Barajas, Thorsten Beck, Era Dabla-Norris, Reza Yousefi",
    "Published: March 28, 2013",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781484351086.001",
    "Introduces the \"financial possibility frontier\" as a constrained optimum level of financial development to gauge the relative performance of financial systems across the globe.",
    "The frontier accounts for structural country characteristics, institutional, and macroeconomic factors that impact financial system deepening.",
    "Framework is operationalized using a benchmarking exercise.",
    "The exercise relates the difference between:",
    "The benchmarking identifies deviations of actual financial development from the level predicted by structural fundamentals.",
    "An overshooting of the financial system significantly beyond levels predicted by its structural fundamentals is associated with credit booms and busts.",
    "The financial possibility frontier provides a tool to:",
    "Monitoring the gap between actual and predicted financial development can help detect overheating risks linked to credit booms and subsequent busts.",
    "Policy attention should focus on the policy variables identified in the benchmarking exercise to address deviations from the frontier and mitigate systemic risk.",
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