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Developing a Financial Stability Model for Mauritius

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Economics and Finance in Mauritius

Abstract

The objective of this chapter is to develop a financial stability model for Mauritius. Indeed, in light of the crisis, there had been an increasing need to generate financial stability models to gauge the different risks likely to impact on both the economic and financial fronts of an economy. This chapter develops a broad financial system strength index model for Mauritius. The results show that Mauritius had been affected the crisis with the costs of undermined output standing in the range of 3.4–5.4%. Latent risks are noted under different channels, namely, public debt sustainability, tourist arrivals and earnings, central bank equity, quality of balance of payments sustainability, trade finance, net foreign investments on the Stock Exchange of Mauritius and future GDP growth paths in Europe and the USA. Findings further show the existence of an ineffective interest rate channel, a robust credit transmission channel and a vibrant exchange rate channel under the Monetary Condition Index. Interestingly, Mauritian banks’ profitability structure is found to have been unaffected by the crisis on the back of a maintained interest rate spread at 7% in spite of a fall in the TED spread. Policy-wise, the authorities should focus on the tourism and credit channels while scaling down the exorbitant interest rate spread to boost the effectiveness of monetary policy. In fact, the high interest rate spread may be acting like a hurdle in insulating the interest rate channel of monetary policy transmission mechanism in Mauritius.

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Notes

  1. 1.

    Results are not shown due to space constraints but can be made available to the reader upon request.

  2. 2.

    All the quarterly data are converted on a monthly frequency.

  3. 3.

    VECM results are not reported due to space constraint but can be made available to interested readers.

  4. 4.

    Results can be made available upon request.

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Author information

Authors and Affiliations

  1. University of Mauritius, Moka, Mauritius

    Indranarain Ramlall

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  1. Indranarain Ramlall
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Appendix

Appendix

Fig. 14.1
figure 1

Stress index BoM Z-score

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Fig. 14.2
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Stress index BoM capital ratio

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Fig. 14.3
figure 3

Stress index-MCB bad debts

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Fig. 14.4
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Stress index-MCB Z-score

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Fig. 14.5
figure 5

MCB deposit gap and loan gap

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Fig. 14.6
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Index-MCB beta

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Fig. 14.7
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Stress index-loan to deposit ratio

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Fig. 14.8
figure 8

Domestic credit by banks stress index

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Fig. 14.9
figure 9

USD volatility stress index

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Fig. 14.10
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EUR volatility stress index

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Fig. 14.11
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GBP volatility stress index

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Fig. 14.12
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Exchange market pressure index

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Fig. 14.13
figure 13

Tourist arrivals stress index

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Fig. 14.14
figure 14

Tourist earnings stress index

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Fig. 14.15
figure 15

Cheques stress index

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Fig. 14.16
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MACSS stress index

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Fig. 14.17
figure 17

Balance of payments stress index

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Fig. 14.18
figure 18

Government debt stress index-cyclical components

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Fig. 14.19
figure 19

Cyclical components of GDP and public debt

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Fig. 14.20
figure 20

Public debt sustainability metric index

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Fig. 14.21
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Stress-interbank market

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Fig. 14.22
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Bid-cover stress index

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Fig. 14.23
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TED spread stress index

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Fig. 14.24
figure 24

Monetary condition stress index

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Fig. 14.25
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Currency in circulation stress index

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Fig. 14.26
figure 26

Broad money multiplier stress index

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Fig. 14.27
figure 27

Excess cash holdings stress index

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Fig. 14.28
figure 28

Net international reserves stress index

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Fig. 14.29
figure 29

Import cover stress index

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Fig. 14.30
figure 30

Oil stress index

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Fig. 14.31
figure 31

Trade finance stress index

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Fig. 14.32
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SEMDEX stress index

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Fig. 14.33
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Net foreign investments

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Fig. 14.34
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Cyclical components of GDP

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Fig. 14.35
figure 35

Mauritius financial system strength index

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Table 14.A.1 Vector error correction estimates for MCB loans and deposits
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figure a
Table 14.A.2 Vector error correction estimates for current account and external debt
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figure b

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Ramlall, I. (2017). Developing a Financial Stability Model for Mauritius. In: Economics and Finance in Mauritius. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-39435-0_14

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  • DOI: https://doi.org/10.1007/978-3-319-39435-0_14

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  • Publisher Name: Palgrave Macmillan, Cham

  • Print ISBN: 978-3-319-39434-3

  • Online ISBN: 978-3-319-39435-0

  • eBook Packages: Economics and FinanceEconomics and Finance (R0)

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