VAR Methodology in Assessment of the Financial Stability

Bors Isac ()
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Bors Isac: The Bucharest University of Economic Studies, Romania

Economics and Applied Informatics, 2015, issue 1, 93-98

Abstract: Projecting a new operational framework designed to ensure the implementation of macro-prudential policy in order to ensure financial stability, it should start from developing the capacity of identifying and measuring the systemic risk, and ultimately, the level of financial instability being reached, early enough, to provide the due time for the macroprudential supervisory authorities to take the corresponding actions. This study investigates the possibility of constructing a composite index that serves to measure the evolution of financial stability and to explore this complex phenomenon in terms of identifying the causes that lead in this situation and the consolidation actions as well as to identify some macroeconomic variables which can be used in predicting the phenomenon. To measure the evolution of financial stability in Romania we used an aggregate index that consists of the fifteen variables which are able to capture the tensions between the different components of the financial system and between it and the real economy. Using the VAR methodology I marked out the influence of a good capitalization of the banking system on financial stability at the aggregate level, identifying and also quantifying the impact of some variables as the yield bonds or CDS quotes on financial stability and the possibility of their use in predicting the phenomenon.

Keywords: Financial stability; VAR models; Aggregate index; Aggregate capital; CDS; Yield bonds (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:ddj:fseeai:y:2015:i:1:p:93-98

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