A GPS Navigator to Monitor Risks in Emerging Economies: The Vulnerability Dashboard

33 Pages Posted: 9 Apr 2021

Date Written: April 8, 2021

Abstract

This paper presents a simple, transparent and model-free framework for monitoring the build-up of vulnerabilities in emerging economies that may affect financial stability in Spain through financial, foreign direct investment or trade linkages, or via global turbulences. The vulnerability dashboards proposed are based on risk percentiles for a set of 34 key indicators according to their historical and cross-section frequency distributions. The framework covers financial market variables, macroeconomic fundamentals –which are grouped into real, fiscal, banking and external variables– and institutional quality and political indicators. This methodology is a valuable complement to other existing tools such as the Basel credit-to-GDP gap and vulnerability indices.

Keywords: emerging economies, crisis, vulnerabilities, heat maps, risks

JEL Classification: F01, F34, G01, G32

Suggested Citation

Alonso Alvarez, Irma and Molina, Luis, A GPS Navigator to Monitor Risks in Emerging Economies: The Vulnerability Dashboard (April 8, 2021). Banco de Espana Occasional Paper No 2111, Available at SSRN: https://ssrn.com/abstract=3822410

Irma Alonso Alvarez (Contact Author)

Bank of Spain ( email )

Calle Alcala, 48
Madrid, 28014
Spain

Luis Molina

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

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