Financial Stress Index in Indonesia

Abstract

This study examines financial stability as a system that has a crucial role in the economy. The financial system can increase the capacity of the national economy. However, in that role, it is necessary to remember that financial instability occurrence results in systemic risk. In preventing or reducing the risk of the possibility of financial system instability, it requires identification using several indicators of financial system stability. The formation of the Financial Stability Index in Indonesia, which was built based on the development pattern of two elements, namely banking and money markets, is one of the applicable ways to measure financial system stability. Based on the results of the analysis using explanatory factors and index calculation of the forming indicators of the financial system stability and the formation of Financial Stress Index on inflation, the Financial Stress Index can be used to measure the stability of the financial sector in Indonesia.