Decomposing Financial (In)Stability in Emerging Economies

40 Pages Posted: 5 Nov 2020

See all articles by Antonio Sánchez Serrano

Antonio Sánchez Serrano

European Systemic Risk Board

Etienne Lepers

Organisation for Economic Co-operation and Development

Date Written: March, 2017


The build-up of risks in advanced economies has seen a lot of research efforts in the recent years, while similar research efforts on emerging economies have not been so strong and, when undertaken, have focused mostly on its international dimension. Simultaneously, the financial system of the emerging economies has substantially developed and deepened. In our paper, we construct an index of vulnerabilities in emerging countries, relying solely on data available at international organisations. We group indicators around four poles: valuation and risk appetite, imbalances in the non-financial sector, financial sector vulnerabilities, and global vulnerabilities. On purpose, we depart from early warning models or any other kind of complex econometric constructs. Simplicity and usability are the two key characteristics we have tried to embed into our index of vulnerabilities. We use the results to try to create a narrative of the evolution of vulnerabilities in emerging economies from 2005 to the third quarter of 2015, using innovative data visualisation tools as well as correlations and Granger causalities. We complement our analysis with a comparison between our index of vulnerabilities and the Credit-to-GDP gap.

Keywords: credit gap, emerging economies, financial crises, index, risk monitoring

JEL Classification: E44, F65, G01, G15, G21, G23

Suggested Citation

Sánchez Serrano, Antonio and Lepers, Etienne, Decomposing Financial (In)Stability in Emerging Economies (March, 2017). ESRB: Working Paper Series No. 2017/39, Available at SSRN: or

Antonio Sánchez Serrano

European Systemic Risk Board ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Etienne Lepers (Contact Author)

Organisation for Economic Co-operation and Development ( email )

2 rue Andre` Pascal
Paris, 75116

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