Financial Stability and Policy Measures

Abstract

Financial stability has gain great importance after the last financial crisis and the need of policy measures oriented to safeguarding and strengthen the financial system motivated us to this research. This Thesis examines the interaction between financial stability growth and monetary policy and provides an assessment of two different financial stress indexes (FSIs) as a measure of financial stability using a Vector Autoregressive Model (VAR). Our principal objective is to search for evidence of the relation of financial stability with the key macroeconomic variables. The results indicate the interaction of financial stability to the real economy and therefore the necessity of policy measures proposals for strengthening the financial stability. Finally, we describe the need for a new regulatory structure for the financial system and policy measures towards to bolstering the resilience of the international financial system in order to encounter the moral hazard risks that the recent crisis brought to surface.