Assessing and Forecasting Romanian Financial System’s Stability Using an Aggregate Index

ABSTRACT: The purpose of the paper is to develop an aggregate stability index for the Romanian financial system in order to help defining, assessing and forecasting financial system stability. The index takes into consideration indicators related to financial system development, vulnerability, banking soundness and international economic climate. The outcome of the study shows an improvement of the Romanian financial system stability during the period 1999-2007. The aggregate index captures the financial turbulences periods like 1998-1999 Romanian banking crisis and 2007 subprime crisis. The forecasted values of the index show a deterioration of financial stability in 2009, influenced by the estimated decline of the financial and economic activity