Paul Louis Ceriel Hilbers

Real Estate Market Developments and Financal Sector Soundness

This paper analyses the characteristics and functioning of real estate markets. It focuses on the relationship between developments in these markets and the financial sector to determine under what circumstances real estate booms and busts can develop and how they can affect the health and stability of the financial system. It concludes that unbalanced real estate price developments often contribute to financial sector distress and that trends in real estate markets should be monitored closely in the context of financial sector assessments.

Stress Testing Financial Systems: What to Do When the Governor Calls

Stress testing is becoming a widely used tool to assess potential vulnerabilities in a financial system. This paper is intended to answer some of the basic questions that may arise as part of the process of stress testing. The paper begins with a discussion of stress testing in a financial system context, highlighting some of the differences between stress tests of systems and of individual portfolios. The paper provides an overview of the process itself, from identifying vulnerabilities, to constructing scenarios, to interpreting the results. The experience of the IMF in conducting stress testing as part of the Financial Sector Assessment Program (FSAP) is also discussed.

Analysis of and Policy Responses to Rapid Credit Growth

This chapter discusses the phenomenon of rapid growth in bank credit to the private sector, which in recent years has been particularly prominent in many Central, Eastern, and South-eastern European countries (CEE). In the past few years, real growth rates of credit to the private sector in these countries were often in the range of 30–50 percent per year, albeit beginning from a low base. This trend has generally been viewed as a normal and positive consequence of the growing degree of deepening and restructuring of the financial system. It fits in with the transition process from centrally planned to market-based economies and has often been supported by the prospect of European Union (EU) accession. At the same time, there are growing concerns about the implications for macroeconomic and financial stability, in particular where rapid credit growth has coIncided with a weakening current account and vulnerabilities in the financial systems.

Monetary Instruments and Their Use During the Transition from a Centrally Planned to a Market Economy

This paper discusses different instruments of monetary policy, and in particular the choice between direct and indirect instruments. It identifies the main characteristics of a country’s financial system that should be considered in selecting monetary instruments, and analyzes how these characteristics should influence that selection in countries that are progressing from a state-controlled to a market economy. The characteristics of the financial system during the initial stage of the transition sometimes favor relatively direct instruments. At this stage market-based variants of direct instruments may combine the necessary effectiveness in reducing monetary expansion with the need to introduce and stimulate competition in the financial markets. During this stage indirect instruments can be developed and tested (“belt and braces” approach). In later stages, as experience is gained, these indirect instruments can gradually replace the more direct controls.

Financial Sector Reform and Monetary Policy in the Netherlands

Financial sector liberalization, both domestic and in cross-border transactions, was a major force behind the gradual move to indirect controls and the shift toward full reliance on exchange rate targeting in the Netherlands. This paper analyzes the different steps in this process, discusses the main arguments behind the gradual approach, and draws lessons for other countries involved in this process. The paper argues that reforms in the financial sector, liberalization of the capital account, adjustments in supervision and regulation, and modernization of monetary management are strongly interrelated and should be part of a comprehensive reform strategy.

Some Issues in the Design of Monetary Instruments for the Operation of European Economic and Monetary Union

The European Monetary Institute has been working with national central banks of the European Union (EU) to prepare instruments for the operation of monetary policy in Stage 3 of European Economic and Monetary Union. Several publications describing the proposed arrangements have been issued. This paper briefly summarizes the arrangements and identifies some areas in which important decisions still have to be made or refinements introduced—including the choice of counterparties in fine-tuning open market operations; the design of reserve requirements; the signaling function of monetary operations; and payment system relationships with non-EMU participants in the EU.