Pavel Trunin. nestabilnosti v razvivayuschikhsya ekonomikakh (na primere Rossii). Nauchnye trudy IEPP. M., 2007, 111

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1 Pavel Trunin The Use of he Signal Approach o Developmen of Early Warning Indicaors of Financial Turmoil in Russia 1 A number of serious imbalances have emerged in he global economy o dae. These are, primarily: a huge defici of he US s balance of paymens, China and he associaed Souh-Eas Asian economies big posiive balance of he curren accoun, a rapid accumulaion of gold and forex reserves in hese counries, Japan s huge financial imbalances, among ohers. The imbalances in quesion can affec no only he respecive economies wherein hey have unfolded, bu oher counries as well, hus derailing heir financial sabiliy. Numerous research show ha periods of financial urmoil ha precede crises have cerain elemens in common. Tha is why, due o huge coss an economy incurs as a resul of financial crises, researchers have focused on developing models which could help policy makers foresee possible challenges and properly reac o hem. Like in he medical science, in economics, i is easier o preven problems, raher han cure hem. Tha is why i is appropriae o underake measures o preclude a crisis from emergence already a he sage of he rise of a financial urmoil. In oher words, o monior he sabiliy of he financial sysem of a given counry, one needs a sysem of indicaors, which would allow a regular evaluaion of is healhy developmen. The need for design of early warning indicaors of financial crisis was firs realized afer several financial crises ha had unfolded in he 1990s. Meanwhile, considerable direc (recapializaion of he banking sysem) and indirec (fall in he economic aciviy) coss engendered by he crises have demonsraed imporance of a consan monioring of he financial sysem in order o expose, in a imely fashion, signs of he emergence of negaive phenomena. Le us noe ha he evaluaion of he indicaors of financial sysem`s sae of course appears insufficien for drawing a final conclusion of he financial sysem s sae, as i in many ways is deermined by facors ha canno be assessed in quaniaive erms. Tha is why evaluaion of early warning indicaors of financial crisis should be considered jus as one of elemens of monioring of he sae of he financial sysem. Besides, one should no mechanisically address he problem of examinaion of he indicaors. Tha is o say, all marginal values ha evidence a rise (fall) in he probabiliy of he financial insabiliy appear relaively provisional, as hey are dependen on a concree siuaion in a given economy. Tha is why, while concluding resuls of he monioring, one always needs o analyze a curren economic siuaion and, depending on ha, o correc findings of he formal analysis. To expose ies beween specific indicaors of financial sabiliy and examinaion of he inernaional experience of employmen of early warning indicaors of financial crisis, below, we provide a brief review of he lieraure on he subjec. On is basis, we presen he lis of indicaors which may poenially be employed o forecas he rise of he financial insabiliy. Then we evaluae efficiency of specific indicaors and give an assessmen of heir marginal values ha appear specific for Russia s financial marke. Finally, we provide resuls of he employmen of he proposed mehodology for he sake of analyzing financial sabiliy in RF in he 4 h quarer Inernaional Record of Building of he Early Warning Indicaors In recen decades, numerous researchers have aemped o idenify indicaors ha highligh on he financial sysem s sae. While early works cenered on examinaion of he fundamenal economic indicaors, he mos recen research emphasized an imporan role of invesors expecaions in forecasing financial crises. 1 The paper is prepared basing on maerials of he research: Trunin P.V,, Kamenskikh M.V. Monioring finansovoy nesabilnosi v razvivayuschikhsya ekonomikakh (na primere Rossii). Nauchnye rudy IEPP. M., 2007, 111

2 I. Fisher provides a classical explanaion of financial insabiliy 2. He argued ha he insabiliy is srongly correlaed wih macroeconomic cycles and he dynamic of he aggregae deb in an economy. Propelled by accumulaion of an excessively large deb in he real secor problems lead o a siuaion in which one has o repay he deb o resore he equilibrium. The deb repaymen subsequenly riggers a fall in deposis and asses sales on a cheap. All hese facors send growh raes in prices and oupu nosedive, as well as rigger a rise in unemploymen and in he number of bankrupcies. So, Fisher believes ha he main cause for financial urmoil is a negaive dynamic of he fundamenal indicaors. Le us noe ha unil oday Russian researchers have underaken jus a few aemps o build he naional financial secor monioring indicaors. More specifically, Sruchenevsky 3 sudies ino he dynamic of macroeconomic parameers ha describe he financial sysem s behavior in he period of normal developmen, pre-crisis periods, and direcly in he imes of financial crises in Russia. Plisesky 4 recaps on he inernaional record of forecasing of financial crises wih he use on an early warning sysem. As well, a number of research was conduced in RF o build early indices designaed for foreseeing a fuure economic dynamic. However, such works resed primarily on he qualiaive analysis and were aimed a forecasing he siuaion in he real secor, raher han in he financial one. For example, Smirnov 5 pus forward a sysem of early indicaors for Russia, which formed he basis for his calculaions, which would enable one o arrive a cerain conclusions regarding he economic dynamic in he counry. In his paper, Osapkovich 6 considers indicaors differen counries employed o build an aggregae early index. All he research papers ha cener on exposing he financial urmoil harbinger indicaors can be classified ino hree groups, depending on he mehodology employed, o idenify he bes indicaors in quesion. 1. Qualiaive analysis. The approach suggess a graphic comparison of he dynamics of he fundamenal economic indicaors on he eve of a financial crisis and in a normal sae. The mos renown research in his direcion by far have been works by J. Aziz, R. Salgado, J. Caprio, D. Klingebiel, F. Caramazzi Economeric modeling. Under his approach, one builds economeric models o idenify correlaion beween a given indicaor and he probabiliy of he financial crisis. Mos ofen, he auhors of hese models (G. Corsei, P. Peseni, N. Rubini, A. Demirguc-Jun, M. Krueger, among ohers) 8 employed logi-analysis or probi-analysis, under which hey es a regression model ha mirrors correlaion beween he probabiliy of a financial crisis and a series of economic indicaors. The esed model is employed for forecasing he probabiliy of he financial crisis. 3. Non-parameric esing. Under his approach, researchers design various numerical characerisics ha allow an early idenificaion of an economy s exposiion o financial 2 Fisher I. The Deb-Deflaion Theory of Grea Depression // Economerica Vol. 1 (Ocober). P Sruchenevsky A.A. Empirichesky analiz finansovykh krizisov v Rossii// Ekonomichesky zhurnal VSHE Vol pp Plisesky D. Sysema monioring finansovogo sekora ekonomiki//bankovskkoye delo Pp Smirnov S. Sysema operezhayuschikh indikaorov dlya Rossii//Voprosy ekonomiki Osapkovich D. O syseme indikaorov syklychnosi ekonomiki//voprosy saisiki See: Aziz J., Caramazza F., Salgado R. Currency crises: in search of common elemens // IMF working paper 00/67. March 2000; Caprio J., Klingebiel D. Bank insolvencies. Cross-counry experience. World Bank Policy Research Working paper Corsei G., Peseni P., Roubini N. Paper igers? A model of he Asian crisis // NBER Working Paper No November 1998.; Demirguc-Kun A. Deragiache E. Financial liberalizaion and financial fragiliy. Prepared for he 1998 World Bank Annual Conference on Developmen Economics

3 crisis. I was such auhors as G. Kaminsky, S. Lizondo, H. Edison, J. Hawkins, M. Klau 9, whose conribuion o his direcion of research was mos noable. In he frame of his approach one can single ou wo main direcions building hreshold values of early warning indicaors of he financial crisis on he basis of various crieria and designing aggregae financial sabiliy indices. We believe ha he qualiaive analysis bears a grea deal of subjeciviy in inerpreaion of he indicaors dynamic. Tha is why i is imperaive o develop some quaniaive characerisics which would allow a greaer objeciviy of he monioring of financial sabiliy. An analysis of he global record in he financial sabiliy monioring allows one o argue ha here exis wo main ways of designing such characerisics. The firs way is economeric modeling, i.e. esing binary choice models wih differen financial insabiliy indicaors ha are employed as exogenous variables. Bu, because of a number of reasons, we consciously rejeced such an analysis. Firs, our examinaion of he inernaional record of building economeric models o assess he probabiliy of he rise of financial insabiliy, showed ha, despie consideraion of he same crisis episodes, differen auhors produce fairly differen findings, boh in erms of he bes early warning indicaors and in erms of selecion of hreshold values of he indicaors. Choosing his or ha economeric model o employ resuls of is esing for he purpose of he financial sabiliy monioring would no be far less subjecive an exercise han a plain qualiaive analysis of he indicaors dynamic. Plus, none of he examined papers displayed any advanage borne by economeric esing vis-à-vis non-parameric mehods. Secondly, because he binary choice models are non-linear, i appears hard o es he conribuion of each regressor ino growh of he probabiliy of emergence of a financial insabiliy in he even he acual value of he indicaor significanly biases from he average one. Finally, o obain saisically significan ess, a fairly big number of crisis episodes is needed. Unil he crisis of he fall 2008, here had been only 4 episodes by which saisical daa are available namely, he Augus 1995 crisis on he inerbank marke, he sock marke crisis in Ocober 1997, a huge financial crisis in Augus 1998, and he crisis in confidence in he naional banking sysem in May The exisence of jus 4 episodes clearly appears insufficien o es he binary selecion model. Is esing on he panel daa (i.e. wih he use of daa on cross-counry crisis episodes), in our view, is undesirable, as i would significanly diminish he power of he crierion, according o which he probabiliy of emergence of he financial insabiliy is assessed. The fac of he maer is ha, despie heir common feaures, crises display numerous peculiariies deermined by specificiies of he respecive economies. Tha is why he dynamic of he financial sabiliy indicaors on he eve of a crisis differs from counry o counry. So, due o he above reasons, we have oped for nonparameric mehods. When compared wih hem, he economeric analysis mehodology appears far more complex and requires fulfillmen of a grea number of premises wih regard o he employed daa. Meanwhile, he mehodology we use is ransparen, while is findings are easy o inerpre. They, of course, have heir limiaions more specifically, if he mehods are implemened, i is harder o employ sandard saisical ess. Bu we, anyway, believe ha he balance of pros and cons of he nonparameric approach esifies o he fac ha i appears more preferred over he oher mehods. Le us noe ha mos papers ha deal wih forecasing of he unfolding of financial urmoil wih he use of such mehods employ he so-called signal approach 10, firs proposed by Kaminsky, Lizondo, 9 Kaminsky G., Lizondo S., Reinhar C. Leading Indicaors of Currency Crises // IMF Saff Papers Vol. 45 (March). P. 148; Edison H. Do indicaors of financial crises work? An evaluaion of an early warning sysem. Board of Governors of he Federal Reserve Sysem Inernaional Finance Discussion Paper No July 2000; Hawkins J., Klau M. Measuring Poenial Vulnerabiliies in Emerging Marke Economies. BIS Working Paper 91. Ocober For he brief descripion of his approach, see: Drobyshevsky S., Trunin P., Paliy A., Knobel A. Nekoorye podkhody k razraboke indikaorov monioring finansovoy sabilnosi. Nauchnye rudy. 103Р. М.: IEPP, 2006.

4 and Reinhar 11 back in However, i has no been ried by far o evaluae Russia s financial sysem. Tha is why we decided o adap i o develop a sysem of leading indicaors of financial insabiliy on Russia s marke, as well as o build an aggregae financial insabiliy index for Russia. Mehodology of he Signal Approach While realizing he signal-based approach, i is assumed here is he necessiy o es zero hypohesis of he economy being in a normal sae vis-à-vis an alernaive hypohesis of he possibiliy of some financial urmoil wihin he upcoming hree o six monhs. As in he course of esing of any saisical hypohesis, a hreshold (criical value 12 ) should be picked. If a value of a given indicaor goes beyond he prese hreshold, he indicaor is believed o send a signal. To selec an opimal hreshold value for each indicaor, one needs o se up some crierion. I is he indicaor ha akes ino accoun he balance beween bad signals and good ones, which is used as such a crierion 13. To build he indicaor, le us break all is values ino four groups (see Table 1). Needless o say, in he ideal case all is values will fi ino cells A and D. Table 1 The Signal-Based Approach o he Tesing of Harbinger Indicaors Crisis is here for 3 monhs No crisis over 3 monhs Signal in place A B No signal C D Using Table 1, i is easy o clarify he mehodology of picking he marginal values. Le us idenify an uncondiional probabiliy of he looming financial urmoil (1) for each indicaor as he raio of observaions ha were followed by he financial urmoil wihin 3 monhs o all observaions. A C P( C) (1) A B C D Should he indicaor send a grea number of good signals, i can be expeced ha he probabiliy of he rise of a financial insabiliy on condiion of he signal generaion P( C S) would be greaer han he uncondiional probabiliy P (C). Meanwhile, A P( C S) (2) A B Tha is o say, in order o make sense ou of he use of he indicaor in quesion for forecasing he emergence of financial insabiliy, he following correlaion should be complee: P( C S) P( C) (3) 11 Kaminsky G., Lizondo S., Reinhar C. Leading Indicaors of Currency Crises // IMF Saff Papers Vol. 45 (March). P We will be esing single-sided hypoheses, ha is, we assume ha eiher a rise, or a fall of a given indicaor may evidence growh in he probabiliy of he emergence of financial insabiliy. 13 The signal is bad, providing is generaion is no followed by financial urmoil. Accordingly, he good signal is ransmied on he eve of he financial insabiliy.

5 Le us label his condiion as he one necessary for selecion of an opimal hreshold value. Besides, while picking he hreshold values, we minimized he bad signals o good ones raio: B /( B D) N S (4) À/( A C) So, we considered all possible hreshold values for each indicaor over a maximum possible ime period and oped for he hreshold value under which he value of he indicaor (4) was minimal, while condiion (3) was observed wih. Le us noe ha in a number of cases i may happen ha he bad -o- good signal raio accouns for zero, because he proporion of bad signals is zero, while he indicaor is oo insensiive, i.e. i does no send signals on he eve of a considerable number of crises. Tha is why, while selecing indicaors and heir hreshold values, i is also imperaive o remain aenive o he proporion of crises a given indicaor heralds (le us denoe i as PC) in he overall number of crises. The review of he lieraure, as well as he qualiaive analysis of various macroeconomic indicaors allowed seing he following lis of indicaors, which, poenially, can signal abou a looming financial insabiliy: Economic growh rae: o GDP growh rae; o Dynamic of indusrial oupu; Balance of paymens: o Balance of he curren accoun of he balance of paymens; o Gold and foreign exchange reserves; o Foreign public deb; o Terms of rade (expor prices); o Impor and expor; o Real effecive exchange rae; o Ne capial ouflow; o Capial fligh Ineres raes: o Real ineres rae; o Spread beween he domesic ineres rae and he LIBOR rae; o Credi ineres rae o deposis ineres rae raio. Moneary indicaors: o Consumer price index (CPI); o Domesic credi in real erms; o Money muliplier; o Deposis in real erms; o Money supply o gold and foreign exchange reserves raio; o «Excess» money supply in real erms. The index of pressure on he forex marke. In mos cases we employed increase raes of he indicaors or considered heir raio o GDP, which enabled us o ensure he daa consisency. A he same ime, in a number of cases, for he sake of analysis we employed an indicaor expressed on levels, as i was he form in which hey demonsraed he greaes prognosic power. Table 2 comprises he descripion of modificaions applied o he indicaors, as well as periodiciy of he daa and heir source. Some characerisics of he Financial Sabiliy Eearly Warning Indicaors Indicaor Modificaion of he variable Periodiciy Source Table 2

6 GDP growh rae Dynamic of indusrial oupu Balance of he curren accoun of he balance of paymen Gold and forex reserves Growh rae in real erms vs he same period of he prior year (SPPY) Quarerly Rossa Increase rae o he prior Monhly Rossa period Level Quarerly CBR Increase rae o he prior Monhly CBR period Foreign deb % of GDP Quarerly CBR Terms of rade* (prices for Bren) Level Monhly IFS** Impor and expor Increase rae o SPPY Monhly IFS The Rb. real effecive exchange rae Increase rae o he prior Monhly CBR year Ne capial ouflow*** Level Quarerly CBR, IET calculaions Capial fligh Level Quarerly CBR, IET calculaions Real ineres rae on he inerbank marke Level Quarerly CBR, IET calculaions Spread beween he domesic ineres rae and LIBOR rae Level Monhly CBR, IFS, IET calculaions The credi rae o deposi rae raio Level Monhly CBR, IET calculaions CPI Increase rae o SPPY Monhly Rossa Domesic credi Increase rae in real erms o Monhly CBR he prior period Money muliplier Level Monhly CBR, IET calculaions Deposis**** Increase rae o SPPY Monhly CBR, Rossa, IET calculaions Money supply o gold and forex reserves raio Level Monhly CBR, IET calculaions «Excess» money supply in real % of GDP Quarerly CBR, Rossa, IET erms ***** Index of pressure on he forex marke ****** calculaions Index Monhly CBR, IET calculaions Noes: *Originally, his indicaor consiues he expor prices o impor prices raio. However, because of he absence of expor and impor prices in Russia s saisics of balance of paymen, his calculaion is impossible. We considered, as an analogous indicaor, he price dynamic for Bren. As oil forms one of main Russia s expors, he index of changes in is price, under he premise of a relaively unchanged prices for impors, may serve a fairly rusworhy indicaor of he counry s rade condiions. ** The IMF daa base Inernaional Financial Saisics (IFS) *** Ne capial ouflow is he balance of he capial flows accoun for banks and non-financial corporaions, as well as ne errors and omissions. Capial fligh is characerized by he sum of rade credis and advance paymens, expor gains no repariaed on ime, and ne errors and omissions. A posiive value of he indicaors means capial inflow, while a negaive one capial ouflow. **** We consider he amoun of demand deposis, ime deposis, saving deposis, and deposis denominaed in foreign exchange. ***** An excess money supply in real erms consiues a bias of he esed money supply from he observed money supply (in he form of he proporion of money supply in GDP), i.e. as a balance of he regression equaion of M he following form : a0 a1y a2p a3, GDP where M money supply М 2 ; GDP nominal GDP; Y volume of GDP (in real erms); р consumer price index; ime. The balances are inerpreed as an indicaor of an excess lending in an economy. ****** The index consiues he average weighed value of he hree indicaors:

7 1) he monhly increase exchange rae of he domesic currency, E ; 2) he increase rae in gold and foreign exchange reserves (wih an inverse sign), R ; 3) he ineres rae level (for Russia ineres rae on he inerbank lending marke), i. The wo laer iems mirror he moneary auhoriies policy on he forex marke in he even a speculaive aack on he naional currency occurrs. I is assumed ha under he fixed (regulaed) exchange rae such an aack would lead o a fall in he naion s gold and forex reserves. On he oher hand, under any forex regime, he cenral bank can raise ineres raes o proec he naional currency. I is considered while being included in he formula for he sake of calculaion of he index of he hird iem. So, he index of pressure on he forex marke is calculaed as: w ( 1E w2 R ) w3i I. 3 Weighs w 1, w2, w3 are seleced in such a manner, so ha o ensure ha variances of all he hree values are equal, i.e. D( w1 E ) D( w2r DE ( ) D( w3i). Accordingly, aking w 1 1, w2 ) DR ( ), w DE ( 3 ) Di (). Applicaion of he above mehodology of selecing early warning indicaors of financial insabiliy in RF allowed obaining he resuls presened in Table 3. The hreshold values were buil on he basis of evaluaion of he daa over he period beween January 1994 and December 2006 (wih accoun of heir availabiliy across individual indicaors). Resuls of Employmen of he Signal Approach 14 Table 3 Indicaor Threshold value N S PC P ( C S) P( C S) P( C) Balance of he curren accoun of he 1.5 USD balance of paymens* bn Real ineres rae on he ILM 4.4% Money supply o gold and forex reserves raio* The Rb. real effecive exchange rae + 6.5% % of Excess money supply in real erms GDP Spread beween he domesic ineres rae and he LIBOR rae 40 p.p GDP growh rae* 5.2% Terms of rade (prices for Bren) USD/barrel USD Capial fligh* bn Gold and forex reserves 2.2% Expor 1.4% Domesic credi 1.6% Index of pressure on he forex marke CPI 222% Deposis 0.9% Impor % Money muliplier Credi ineres rae o deposi rae raio Ne capial ouflow USD bn Evaluaion of he findings allows one o conclude ha employmen of all he indicaors, excep for ne capial ouflow, enables one o forecas he rise of financial insabiliy wih he probabiliy 14 By aserix we noed he indicaors for which he bes resuls were goen under calculaions wih he use of a sixmonh signal window prior o he crisis.

8 rae being greaer han he uncondiional one. In oher words, he employmen of he proposed mehodology gives a possibiliy o predic a financial insabiliy, a leas, beer han wih he use of frequency of he pas financial crises, as he forecas, which, in our view forms a necessary condiion of he indicaor s efficiency. In addiion, we propose o se a lower hreshold of he excess of he condiional probabiliy over he uncondiional one a he level of 5 p.p. as he crierion of efficiency of an indicaor. In his case, i will be 13 indicaors ha would for he group of efficien indicaors, whose analysis would enable one o predic financial insabiliy. Table 4 provides daa on he sae of he sysem of funcional leading financial insabiliy indicaors on he eve of he pas crisis episodes in RF. Table 4 The Sae of he Financial Insabiliy Leading Indicaors on he Eve of Crisis Episodes in RF Crisis episode The number of indicaors across which here are he pre-crisis saisics The number of indicaors ha se he signal wihin 3 monhs prior o he crisis The proporion of indicaors ha se he signal in he overall number of indicaors, as % The inerbank marke crisis, Aug The sock marke crisis, Oc The financial crisis, Aug The confidence crisis in Russia s banking sysem, May I can be noed from Table 4 ha i was he financial crisis of Augus 1998, whose approaching was signaled by he greaes number of indicaors. I should have been expeced, as he magniude of he crisis by far has been he greaes one. As concerns he oher episodes, some 40% of indicaors would se respecive signals. Bu i may well happen ha a proporion of indicaors ha signal he looming financial insabiliy does no form he bes aggregae indicaor of financial sabiliy in a counry. In oher words, as he number of he examined indicaors is sufficienly big, here arises he problem of aggregaion of he informaion provided by he examinaion of he dynamics of individual indicaors. We considered some varians of such aggregaion, i.e. of he building of aggregae financial sabiliy indices. The firs one merely represens a sum of all he signals se a momen : 13 1 j S j1 I (5) I is clear, however, ha his index falls shor of facoring in numerous facors. For example, he probabiliy of financial insabiliy can grow, bu ha does no mean ha all indicaors would simulaneously se he signal. Tha is why o monior a gradual accumulaion of problems in he economy, i is suggesed employing he following index, oo: 13 2 j S s, j1 I, (6) j S, s where equals 1, should indicaor j se signal a leas once in s monhs prior o momen. Parameer s is se exogenously; proceeding from our premise ha he crisis sympoms should manifes hemselves, as a minimum, over hree monhs prior o is sar, we will assume ha s equals 3.

9 The above wo indexes do no fully use he informaion obained while building he hreshold values of he leading indicaors, as hey fail o ake ino accoun heir individual forecas accuracy raes. I would be a logical way o facor his informaion in by weighing individual indicaors wih he use of values ha equal he excess of he condiional probabiliy of he rise of financial insabiliy, in he even hey have se he signal, over he uncondiional one: j j j I S ( P ( C S) P ( C)) (7) 3 13 j1 Afer calculaing he values he indices posed beween July 1995 and December 2006, we esed P( C I I I) probabiliies of he rise of financial insabiliy under differen values posed by he indices: À P( C I I I ), (8) À B where I he lower margin of he inerval for which he probabiliy of he rise of financial insabiliy is compued; I he upper margin of his inerval; A equals he number of cases when he index value found iself wihin he inerval [ I; I ) and a crisis burs ou wihin he nex hree monhs; B equals he number of cases when he index value was in he same inerval, bu no crisis occurred over he nex hree monhs. To es he prognosic power of he indices, we sugges esing he bias of empirical probabiliies of he rise of financial insabiliy P from acual probabiliies, under which we will undersand values of he dummy variable R, which akes form 1 wihin hree monhs prior o he crisis and 0 in he oher cases. Accordingly, he following indicaor can be calculaed for each index: Q k 1 T T 1 ( P k R ) 2, (9) where k {1;2;3} depics an index for which he prognosic power is calculaed, while T equals he number of observaions. Table 5 gives values of indicaor Q : Table 5 Prognosic Power of Various Financial Sabiliy Indicaors Indicaor Prognosic powe (Q ) Uncondiional probabiliy Balance of he curren ransacions accoun of he balance of paymens 1 I I I 0.074

10 I can be noed from Table 5 ha i is he aggregae index, which facors in each indicaor s operaional capaciy, ha allows one o forecas a looming financial insabiliy. I forecass i more accuraely han any leading indicaor, and is employmen appears noably more efficien han he value of he uncondiional probabiliy of financial insabiliy. Meanwhile, i appears appropriae o employ all hree aggregae indices o examine he siuaion in he financial secor. Monioring of Financial Sabiliy in RF in he 4 h Quarer 2008 Resuls of he employmen of he quaniaive analysis mehodology are presened in Table 6. I conains he values of he leading indicaors regisered beween he 2nd and he 4h quarers 2008, heir hreshold values. As well, he Table reflecs wheher or no hey se he signal. Table 6 The Sae of he Sysem of Financial Insabiliy Indicaors in he 2 nd -4 h Quarers 2008 Indicaor Balance of he curren accoun of he balance of paymens Real ineres rae on he ILM Money supply o gold and forex reserves raio The Rb. real effecive exchange rae Excess money supply in real erms Spread beween he domesic ineres rae and he LIBOR rae Threshold value 1.5 USD bn. 2 nd Q rd Q h Q 2008 Value Signal Value Signal Value Signal 25.8 USD bn USD bn USD bn % 0.7% 0 0.2% 0 0.0% % 0.5% 0 0.4% 0 3.6% 0 2.2% of GDP 1.1% of GDP 0 0.1% of GDP 0 5.4% of GDP 40 p.p p.p p.p p.p. 0 GDP growh rae 5.2% + 7.5% % % 0 Trade condiions (prices for Bren) USD/barrel USD/barrel USD/barrel USD/barrel 8.3 USD 10.1 USD 11.9 USD USD bn. 1 bn. bn. bn. Capial fligh Gold and forex reserves 2.2% + 4.2% 0 4.4% 1 6.3% 1 Expor 1.4% % % % 1 Domesic credi 1.6% + 3.8% % % 1 Index of pressure on he forex marke When compared wih he 3rd quarer 2008, he probabiliy of he rise of he financial crisis grew noably in he nex quarer. Negaive rends were on he rise in Russia s financial secor five ou of 13 indicaors gave signals in differen monhs of he quarer namely, gold and forex reserves, he index of pressure on he forex marke, domesic credi in real erms, expor, and capial fligh. Such a big number of indicaors seing he signal was noed for he firs ime since March 2004 (prior o he crisis of confidence in Russia s banking sysem). Bu a he ime such a siuaion was noed jus over one monh, while resuls of he mos recen monioring evidenced ha as many as five indicaors signaled he upcoming urmoil in November and December. Such a sae of he sysem of financial sabiliy indicaors was noed jus on he eve of he 1998 crisis. Meanwhile, le us noe ha i was he indicaors ha carried he leas weigh in he financial 0

11 insabiliy index ha se he signal. However, here is every reason o believe ha he siuaion in Russia s financial secor may furher aggravae over ime. The period of lae 2008-early 2009 has highlighed a significan magniude of he economic crisis ha baered he counry. Meanwhile, hanks o he accumulaed reserves and he naional moneary auhoriies imely reacion, he governmen has by far avoided a mass bankrupcy of credi organizaions and exodus of heir cusomers. Bu he sae of he sysem of financial sabiliy indicaors speaks in favor of hard imes facing Russia s financial sysem in he mediumerm. We fixed he sae of he sysem of leading indicaors which corresponds o some 40% probabiliy of growh in he magniude of financial insabiliy over he upcoming 1-2 quarers. This resul evidences ha he probabiliy of he furher aggravaion of he siuaion in he financial secor and, consequenly, in he real secor may remain high over he firs half Conclusions The findings referenced o in he presen paper allow one o argue ha boh heoreical and pracical research prove here is a possibiliy for building indicaors ha enable expers o conduc a imely forecasing of he rise of financial insabiliy. Inernaional experience demonsraes ha he financial sabiliy indicaors can be successfully employed o forecas he rise of financial insabiliy. Our examinaion of approaches o forecass of financial urmoil allowed us o compile a heoreically subsaniaed lis of indicaors whose efficiency was firs esed on he Russian financial marke. The lis comprises such indicaors as he real exchange rae, GDP growh rae, dynamic of he domesic lending and money supply, change in consumer prices, erms of rade, among ohers. The saisical esing of he said indicaors offers he possibiliy o forecas he rise of financial insabiliy wih a probabiliy rae being in excess of an uncondiional probabiliy of he rise of financial insabiliy. Developmen of a sysem of he financial insabiliy leading indicaors for a specific counry, raher han a group of counries, allows a considerable increase in he indicaors efficiency, which appears paricularly imporan, should economic agens employ he suggesed mehodology for he sake of decision making. The fac of he maer is, while analyzing a given counry s financial marke, i becomes plausible o consider is specificiy and adjus hreshold values of he leading indicaors accordingly. For Russia, i is he balance of he curren accoun of he balance of paymens, he real ineres rae, he money supply o gold and forex reserves raio, he Rb. real effecive exchange rae and excess money supply in real erms ha became he mos efficien indicaors. The paper suggess original aggregae financial sabiliy indices in RF, using which one can ge a quaniaive assessmen of he probabiliy of he rise of financial insabiliy. Employmen of he suggesed mehodology for he sake of evaluaion of financial sabiliy in he 4 h quarer 2008 demonsraed ha five ou of hireen indicaors se he signal of a high probabiliy of he rise of he crisis. Those were: gold and forex reserves, he index of pressure on he forex marke, domesic credi in real erms, expor, and capial fligh. Such a shape of he harbinger indicaor sysem maches corresponds o some 40% probabiliy of he rise of financial insabiliy wihin he fuure one-wo quarers. Given he negaive rends in he economy, we esimae he probabiliy of aggravaion of he financial crisis in RF in 2009 as being a high one, paricularly if he sae of affairs in he foreign rade area is going o worsen furher on.