Studies On Measurement And Analysis Of Financial Stability

In2008, the outbreak of the global financial crisis makes people aware that the global financial system is far from reaching a stable state.The financial stability measures and related researches are still the hot issues which financial regulators and academics pay close attention to. Researches on the definition and measurement of fi-nancial stability have begun to increase graduallysince the Asian financial crisis, while the financial crisis this time is a new impetus for this research field. On the base of the research progress on financial stability up to now, this paper tries to propose a more systematic and more intuitive measurement method for financial stability, and make some empirical analysis under the real conditions of the finance and macroeconomics, to provide some practical methods for maintaining the financial system stability in China and even in the globe.The essence of the financial market is the market for funds’moving. The im-portance of liquidity to the financial system is self-evident, since the financial market turmoil is partly caused by loose and tight liquidity before and after the crisis. The paper constructs an aggregated measure index for global liquidity based on the money supply, credits and international reserves after comparing various index synthesis technologies. The liquidity index well reflects the variation of global liquidity in recent years. Ac-cording to the econometric analysis on main macroeconomic indicators, it shows that the changes of the bond yields and inflation have significant effects on the liquidity, and are also main factors affecting other macroeconomic variables. The stress testing is carried out based on some stress scenarios of these two indicators. The results show that the bond yields have bigger impact on current liquidity, while the impact of inflation on the liquidity is stronger and more lasting. Using principal component analysis and Granger causality test to analyze the liquidity risk of the ten largest economies, it indicates that absorption ratio can well reflect the agglomeration of liquidity risk and early warn the financial crisis to a certain extent.The results of Granger causality test show that the im-pact of international liquidity on China is the most, which may result in the flood of do-mestic liquidity.The measure of financial stability naturally takes the liquidity measure as an im-portant part. Besides, the financial system development, vulnerability, soundness and macroeconomic situation are also considered in the measurement to more fully and sys- tematically reflect the level of financial stability. Therefore, this article chooses or builds more than twenty indicators from these aspects, and then aggregates them to a single index for measuring the global financial stability. This index can well reflect the condi-tion of global financial stability and indicate the big events affecting the operation of the financial system.By means of macro stress testing model to study the response of global financial system to the sharp change of interest rate and oil price, the results show that both of the stress scenarios have significant impact on financial stability, and the finan-cial stability will drop to an even lower level than before.The panel data model can be applied to the financial stability measurement indexes of the top ten economies. Based on the one-way random-effects model analysis for the groups of developed and devel-oping economies, it shows that the base interest rate, security trading volume and unem-ployment rate have significant effect on financial stability in the developing economies group but not in the developed economies group. It can be concluded that the financial stability is not sensitive enough to some of the macro indicators in the developed mar-kets, but because of the financial market in developing countries being not mature, the financial stability is more sensitive to even smaller change of macro variables in devel-oping countries. In the end of the chapter, the dialectical relationship of global financial stability and local financial stability is analyzed briefly.Although China has not been attacked by a severe financial crisis, it is worthy of in-depth analysis about whether the financial system is stable or how about the financial stability. Following the research framework of global financial stability, the indicators for measuring the global financial stability are applied to China, and two more indicators are added, to construct China’s aggregated financial stability measure index. The do-mestic financial reform and international financial crisis are reflected through the ag-gregated index. The econometric model result shows that Shanghai stock index and its volatility, consumer confidence index significantly impact on the financial stability measure index. The method of Monte Carlo simulation is adopted to forecast the index, and it can be expected that China’s financial stability can hold steady in the process of the financial system reform.After the financial crisis, international cooperation and financial regulation reform have been strengthened to safeguard global financial stability. The financial regulation reforms in developed countries are especially worth of attention.The international finan-cial regulatory rules are improved from multiple aspects such as the financial consumer protection, regulation of OTC derivatives, leverage control, regulation of liquidity risk, etc. Although the impact of the financial crisis on China is limited and China’s financial system is still in the process of reform and opening, the financial regulatory reform of the countries suffering financial crisis is worth learning. It will benefit maintaining long-term stability of China’s financial system. The emerging debt problem after the cri-sis is becoming the world’s biggest financial risk. From national debt problems like Eu-ropean sovereign debt crisis, the high bebt level in Japan and the US, local government debt problem in China, etc. to the "too big to fail" enterprises’debt problem, the finan-cial stability faces big chanllenge. Meanwhile, the potential of shadow banking cannot be ignored. ETF develops rapidly both in China and abroad in recent years. Its asset scale and transaction volume have reached to a degree which can affect the financial stability. In this paper, the developments of the global and domestic ETF market situa-tion are summarized, and the product structures of traditional ETF and synthetic ETF are analyzed to reveal the risk source. Then, the effects and potential threats of ETF to fi-nancial stability are discussed in the end.