A proposed thermal map of the Mexican financial system with early warnings of instability
DOI:
https://doi.org/10.24275/uam/azc/dcsh/ae/2022v37n94/MartinezKeywords:
Financial stability, heat map, macroeconomic risk, financial leverage, risk appetiteAbstract
This research developed a heat map of the Mexican financial system to identify its vulnerabilities. The proposed methodology extends that used by Bank of Mexico (Banxico), and its advantages are: 1) the number of variables is reduced to those originally used by Banxico (from 58 to 23) discarding redundant variables; 2) 22 of the 23 variables are available on public platforms; and 3) the category of “risk appetite” is the item that generates the greatest instability; 4) it generates early warnings of overdue loans and the import index; the latter indicator may have repercussions on Banxico's inflation target. It also discusses how the identified risk factors can be magnified by COVID-19. Finally, the proposed thermal map is novel due to the generation of early warnings, in addition to the fact that such a proposal allows the detection of additional risk elements to those indicated by the Central Bank.
JEL Classification: E44; E58; G12; G21; G28.
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Copyright (c) 2022 Marco Ulises Martínez Ledesma, Ana Lorena Jiménez Preciado, Francisco Venegas Martínez
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
