Determinants of Financial Instability in Selected <i>East and Southern African</i> Countries

Temesgen Furi; Wondafarahu Mulgeta; Badassa Wolteji Chala

doi:doi:10.11648/j.ijefm.20221002.11

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Determinants of Financial Instability in Selected East and Southern African Countries

Temesgen Furi, Wondafarahu Mulgeta, Badassa Wolteji Chala

Published in International Journal of Economics, Finance and Management Sciences (Volume 10, Issue 2)

Received: 25 November 2021 Accepted: 10 January 2022 Published: 9 March 2022

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Abstract

These studies intend to identify the major determinants of financial instability in the East and Southern African Countries from 2010 to 2019. The issue of financial instability has, for long, been the major concern of policy makers, but still, there have been on-going debates and extensive discussions on measuring the financial instability. Several studies show that limits on LTV and DTI ratios can curb the feedback loop between mortgage credit availability and house price appreciation. Nevertheless, there is to date only every limited analysis of any macroeconomic effects and the use of macroprudential tools and no macro prudential instruments in East and Southern African Countries in general. Study used Credit growth and PCA analysis of financial stability index and system GMM model to identify financial instability in contemporary inclusive financial economy. FII constructed based on PCA of different variables like bank Z-Score and net interest margin in the first scenarios and using composite index of Credit growth, banking Score and net interest margin in the second scenarios. Result of the study reveals FII affected by Money supply, debt growth, inflation rate and economic growth etc. In spite of the credible theoretical arguments, using the system GMM method study found that FII negatively affected by Money supplies, debt growth, inflation rate, volatility of economic growth in 14 East and Southern African Countries included in the study between 2010 and 2019. Therefore, building integrated, coordinated and potentially consistent macro prudential policies was required to avoid negative spillovers that could counteract the financial instability. Furthermore, to constrain funding or liquidity risks, liquidity-related instruments like limits on net open currency positions, currency mismatches and reserve requirements are an asset.

Published in	International Journal of Economics, Finance and Management Sciences (Volume 10, Issue 2)
DOI	10.11648/j.ijefm.20221002.11
Page(s)	37-44
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Financial Instability, System GMM, Credit to GDP Gap, Net Interest Margin, Z-score, Principal Component Analysis

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APA Style

Temesgen Furi, Wondafarahu Mulgeta, Badassa Wolteji Chala. (2022). Determinants of Financial Instability in Selected East and Southern African Countries. International Journal of Economics, Finance and Management Sciences, 10(2), 37-44. https://doi.org/10.11648/j.ijefm.20221002.11

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ACS Style

Temesgen Furi; Wondafarahu Mulgeta; Badassa Wolteji Chala. Determinants of Financial Instability in Selected East and Southern African Countries. Int. J. Econ. Finance Manag. Sci. 2022, 10(2), 37-44. doi: 10.11648/j.ijefm.20221002.11

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AMA Style

Temesgen Furi, Wondafarahu Mulgeta, Badassa Wolteji Chala. Determinants of Financial Instability in Selected East and Southern African Countries. Int J Econ Finance Manag Sci. 2022;10(2):37-44. doi: 10.11648/j.ijefm.20221002.11

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@article{10.11648/j.ijefm.20221002.11,
  author = {Temesgen Furi and Wondafarahu Mulgeta and Badassa Wolteji Chala},
  title = {Determinants of Financial Instability in Selected East and Southern African Countries},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {10},
  number = {2},
  pages = {37-44},
  doi = {10.11648/j.ijefm.20221002.11},
  url = {https://doi.org/10.11648/j.ijefm.20221002.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20221002.11},
  abstract = {These studies intend to identify the major determinants of financial instability in the East and Southern African Countries from 2010 to 2019. The issue of financial instability has, for long, been the major concern of policy makers, but still, there have been on-going debates and extensive discussions on measuring the financial instability. Several studies show that limits on LTV and DTI ratios can curb the feedback loop between mortgage credit availability and house price appreciation. Nevertheless, there is to date only every limited analysis of any macroeconomic effects and the use of macroprudential tools and no macro prudential instruments in East and Southern African Countries in general. Study used Credit growth and PCA analysis of financial stability index and system GMM model to identify financial instability in contemporary inclusive financial economy. FII constructed based on PCA of different variables like bank Z-Score and net interest margin in the first scenarios and using composite index of Credit growth, banking Score and net interest margin in the second scenarios. Result of the study reveals FII affected by Money supply, debt growth, inflation rate and economic growth etc. In spite of the credible theoretical arguments, using the system GMM method study found that FII negatively affected by Money supplies, debt growth, inflation rate, volatility of economic growth in 14 East and Southern African Countries included in the study between 2010 and 2019. Therefore, building integrated, coordinated and potentially consistent macro prudential policies was required to avoid negative spillovers that could counteract the financial instability. Furthermore, to constrain funding or liquidity risks, liquidity-related instruments like limits on net open currency positions, currency mismatches and reserve requirements are an asset.},
 year = {2022}
}

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TY  - JOUR
T1  - Determinants of Financial Instability in Selected East and Southern African Countries
AU  - Temesgen Furi
AU  - Wondafarahu Mulgeta
AU  - Badassa Wolteji Chala
Y1  - 2022/03/09
PY  - 2022
N1  - https://doi.org/10.11648/j.ijefm.20221002.11
DO  - 10.11648/j.ijefm.20221002.11
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 37
EP  - 44
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20221002.11
AB  - These studies intend to identify the major determinants of financial instability in the East and Southern African Countries from 2010 to 2019. The issue of financial instability has, for long, been the major concern of policy makers, but still, there have been on-going debates and extensive discussions on measuring the financial instability. Several studies show that limits on LTV and DTI ratios can curb the feedback loop between mortgage credit availability and house price appreciation. Nevertheless, there is to date only every limited analysis of any macroeconomic effects and the use of macroprudential tools and no macro prudential instruments in East and Southern African Countries in general. Study used Credit growth and PCA analysis of financial stability index and system GMM model to identify financial instability in contemporary inclusive financial economy. FII constructed based on PCA of different variables like bank Z-Score and net interest margin in the first scenarios and using composite index of Credit growth, banking Score and net interest margin in the second scenarios. Result of the study reveals FII affected by Money supply, debt growth, inflation rate and economic growth etc. In spite of the credible theoretical arguments, using the system GMM method study found that FII negatively affected by Money supplies, debt growth, inflation rate, volatility of economic growth in 14 East and Southern African Countries included in the study between 2010 and 2019. Therefore, building integrated, coordinated and potentially consistent macro prudential policies was required to avoid negative spillovers that could counteract the financial instability. Furthermore, to constrain funding or liquidity risks, liquidity-related instruments like limits on net open currency positions, currency mismatches and reserve requirements are an asset.
VL  - 10
IS  - 2
ER  -

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Author Information

Temesgen Furi

Department of Economics, Wollega University, Nekemte, Ethiopia
Wondafarahu Mulgeta

Department of Economics, African Leadership Excellence Academy, Addis Ababa, Ethiopia
Badassa Wolteji Chala

Department of Economics, Ambo University, Ambo, Ethiopia

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APA Style

Temesgen Furi, Wondafarahu Mulgeta, Badassa Wolteji Chala. (2022). Determinants of Financial Instability in Selected East and Southern African Countries. International Journal of Economics, Finance and Management Sciences, 10(2), 37-44. https://doi.org/10.11648/j.ijefm.20221002.11

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ACS Style

Temesgen Furi; Wondafarahu Mulgeta; Badassa Wolteji Chala. Determinants of Financial Instability in Selected East and Southern African Countries. Int. J. Econ. Finance Manag. Sci. 2022, 10(2), 37-44. doi: 10.11648/j.ijefm.20221002.11

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AMA Style

Temesgen Furi, Wondafarahu Mulgeta, Badassa Wolteji Chala. Determinants of Financial Instability in Selected East and Southern African Countries. Int J Econ Finance Manag Sci. 2022;10(2):37-44. doi: 10.11648/j.ijefm.20221002.11

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@article{10.11648/j.ijefm.20221002.11,
  author = {Temesgen Furi and Wondafarahu Mulgeta and Badassa Wolteji Chala},
  title = {Determinants of Financial Instability in Selected East and Southern African Countries},
  journal = {International Journal of Economics, Finance and Management Sciences},
  volume = {10},
  number = {2},
  pages = {37-44},
  doi = {10.11648/j.ijefm.20221002.11},
  url = {https://doi.org/10.11648/j.ijefm.20221002.11},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijefm.20221002.11},
  abstract = {These studies intend to identify the major determinants of financial instability in the East and Southern African Countries from 2010 to 2019. The issue of financial instability has, for long, been the major concern of policy makers, but still, there have been on-going debates and extensive discussions on measuring the financial instability. Several studies show that limits on LTV and DTI ratios can curb the feedback loop between mortgage credit availability and house price appreciation. Nevertheless, there is to date only every limited analysis of any macroeconomic effects and the use of macroprudential tools and no macro prudential instruments in East and Southern African Countries in general. Study used Credit growth and PCA analysis of financial stability index and system GMM model to identify financial instability in contemporary inclusive financial economy. FII constructed based on PCA of different variables like bank Z-Score and net interest margin in the first scenarios and using composite index of Credit growth, banking Score and net interest margin in the second scenarios. Result of the study reveals FII affected by Money supply, debt growth, inflation rate and economic growth etc. In spite of the credible theoretical arguments, using the system GMM method study found that FII negatively affected by Money supplies, debt growth, inflation rate, volatility of economic growth in 14 East and Southern African Countries included in the study between 2010 and 2019. Therefore, building integrated, coordinated and potentially consistent macro prudential policies was required to avoid negative spillovers that could counteract the financial instability. Furthermore, to constrain funding or liquidity risks, liquidity-related instruments like limits on net open currency positions, currency mismatches and reserve requirements are an asset.},
 year = {2022}
}

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TY  - JOUR
T1  - Determinants of Financial Instability in Selected East and Southern African Countries
AU  - Temesgen Furi
AU  - Wondafarahu Mulgeta
AU  - Badassa Wolteji Chala
Y1  - 2022/03/09
PY  - 2022
N1  - https://doi.org/10.11648/j.ijefm.20221002.11
DO  - 10.11648/j.ijefm.20221002.11
T2  - International Journal of Economics, Finance and Management Sciences
JF  - International Journal of Economics, Finance and Management Sciences
JO  - International Journal of Economics, Finance and Management Sciences
SP  - 37
EP  - 44
PB  - Science Publishing Group
SN  - 2326-9561
UR  - https://doi.org/10.11648/j.ijefm.20221002.11
AB  - These studies intend to identify the major determinants of financial instability in the East and Southern African Countries from 2010 to 2019. The issue of financial instability has, for long, been the major concern of policy makers, but still, there have been on-going debates and extensive discussions on measuring the financial instability. Several studies show that limits on LTV and DTI ratios can curb the feedback loop between mortgage credit availability and house price appreciation. Nevertheless, there is to date only every limited analysis of any macroeconomic effects and the use of macroprudential tools and no macro prudential instruments in East and Southern African Countries in general. Study used Credit growth and PCA analysis of financial stability index and system GMM model to identify financial instability in contemporary inclusive financial economy. FII constructed based on PCA of different variables like bank Z-Score and net interest margin in the first scenarios and using composite index of Credit growth, banking Score and net interest margin in the second scenarios. Result of the study reveals FII affected by Money supply, debt growth, inflation rate and economic growth etc. In spite of the credible theoretical arguments, using the system GMM method study found that FII negatively affected by Money supplies, debt growth, inflation rate, volatility of economic growth in 14 East and Southern African Countries included in the study between 2010 and 2019. Therefore, building integrated, coordinated and potentially consistent macro prudential policies was required to avoid negative spillovers that could counteract the financial instability. Furthermore, to constrain funding or liquidity risks, liquidity-related instruments like limits on net open currency positions, currency mismatches and reserve requirements are an asset.
VL  - 10
IS  - 2
ER  -

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