Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154202
Authors: 
Ramsay, Bruce A.
Sarlin, Peter
Year of Publication: 
2015
Series/Report no.: 
ECB Working Paper 1769
Abstract: 
This paper introduces the ratio of debt to cash flow (D/CF) of nations and their economic sectors to macroprudential analysis, particularly as an indicator of systemic risk and vulnerabilities. While leverage is oftentimes linked to the vulnerability of a nation, the stock of total debt and the flow of gross savings is a less explored measure. Cash flows certainly have a well-known connection to corporations' ability to service debt. This paper investigates whether the D/CF provides a means for understanding systemic risks. For a panel of 33 nations, we explore historic D/CF trends, and apply the same procedure to economic sectors. In terms of an early-warning indicator, we show that the D/CF ratio provides a useful additional measure of vulnerability to systemic banking and sovereign crises, relative to more conventional indicators. As a conceptual framework, the assessment of financial stability is arranged for presentation within four vulnerability zones, and exemplified with a number of illustrative case studies.
Subjects: 
debt to cash flow
early-warning indicator
systemic risk
total debt to gross savings
JEL: 
E21
F34
G01
H63
ISBN: 
978-92-899-1582-3
Document Type: 
Working Paper

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