Indicators of Financial Instability

A global Slowdown, rising oil prices, and monetary tightening in industrial countries may lead to net capital outflows which accentuate high ratios of short-term to total external debt. This paper focuses on finding consistent indicators of financial instability. Knowledge of these indicators should assist attempts to implement institutional financial reform and improve an economy's resilience to shocks. It is highly useful to provide policy-makers with tools that measure financial crises, and in particular, to examine how macroeconomic aggregates behave during episodes of financial instability cycles. This is the objective of what follows and these indicators signal the variables that need to be monitored for effective policy responses to emerging financial difficulties.JEL Classification: G1