Words, words, words: do they matter in finance? And, more to the point, do reports on financial stability have an impact on, say, financial stability? New research suggests that the answer is a qualified “yes”: such reports can actually have a positive link with financial stability, if they are done well. Reports that are written clearly, are consistent over time, and cover the key risks to stability are associated with more stable financial systems.
Publishing reports on financial stability has been a rapidly growing industry, with more and more central banks and other agencies around the world now publishing such reports. As of early 2012, around 80 such reports are being issued on a regular basis (Figure 1). The stated aim of most of these reports is to point out key risks and vulnerabilities to policy makers, market participants, and the public at large, and thereby ultimately helping to limit financial instability.
Figure 1. The number of countries that publish financial stability reports
Source: Čihák, Muñoz, Teh Sharifuddin, and Tintchev (2012).
- Financial Sector