Systemic risks and financial fragility in a small open economy : the case of Bosnia-Herzegovina
This thesis investigates the sources of financial system fragility in a small open economy with a traditional banking system, with a focus on Bosnia and Herzegovina. Conducting research on Western Balkan countries is challenging given the shortness of time series, unrepresentative samples, numerous structural breaks, poor quality data and the historical absence of the phenomenon that is the focus of investigation. For this reason, the common assumption that the findings associated with other regions or countries are applicable to the Western Balkans is rejected. Instead, two measures of systemic risk are constructed to assess a countryâs financial system fragility that reflects the specific characteristics of a country such as Bosnia and Herzegovina. The liquidity index measures how vulnerable the financial system is to a currency crisis represented by the abandonment of the currency board arrangement. The solvency index is an indicator of banking system fragility at a point in time. Changes over time in both these measures of systemic risk are related to changes in a set of macroeconomic and banking sector specific variables. This thesis contributes to a better understanding of financial system fragility
Colakovic, Belma
L100 Economics
Systemic risks and financial fragility in a small open economy : the case of Bosnia-Herzegovina. This thesis investigates the sources of financial system fragility in a small open economy with a traditional banking system, with a focus on Bosnia and Herzegovina. Conducting research on Western Balkan countries is challenging given the shortness of time series, unrepresentative samples, numerous structural breaks, poor quality data and the historical absence of the phenomenon that is the focus of investigation. For this reason, the common assumption that the findings associated with other regions or countries are applicable to the Western Balkans is rejected. Instead, two measures of systemic risk are constructed to assess a countryâs financial system fragility that reflects the specific characteristics of a country such as Bosnia and Herzegovina. The liquidity index measures how vulnerable the financial system is to a currency crisis represented by the abandonment of the currency board arrangement. The solvency index is an indicator of banking system fragility at a point in time. Changes over time in both these measures of systemic risk are related to changes in a set of macroeconomic and banking sector specific variables. This thesis contributes to a better understanding of financial system fragility
systemic risk financial fragility small open economy case bosnia_herzegovina investigates source financial_system fragility small open economy traditional banking system focus bosnia_herzegovina western balkan country challenge give time_series unrepresentative sample numerous structural break poor_quality data historical absence phenomenon focus investigation reason common_assumption finding associate region country applicable western balkans reject instead measure systemic risk construct assess country financial_system fragility reflect specific characteristic country bosnia_herzegovina index measure vulnerable financial_system currency crisis represent abandonment currency board arrangement index indicator banking system fragility point_time changes time measure systemic risk relate change set banking sector specific variable contributes well financial_system fragility