Financial Stability Monitoring

This course focuses on financial stability monitoring and evaluation as an essential discipline for macroeconomic, financial and prudential policymakers. We begin by defining financial stability, examining the dynamic behavior of macroeconomic models with developed models of the financial sector, and considering conceptual frameworks for assessment of threats to financial stability. From there, we identify key signatures of financial instability, how they can be measured and combined in a monitoring system, and how such measurement systems signal changes in the level of systemic risk. Through case studies, class participation and two assignments, you will interpret these measures, develop questions for further investigation and assess the nature and extent of systemic risk. You will be asked to write two policy memoranda: the first proposing and justifying a small set of financial stability indicators for monitoring; and the second assessing the risk of financial instability in indicators for that (or another) country, in indicators of vulnerabilities with strong network effects, and in unconventional risks such as cyber or widespread trade tensions. Both assignments emphasize developing timely and persuasive analysis that prompts policymakers to consider the need for action to preserve financial stability.