AE Impact Story: Modelling the Stability of the Barbadian Financial System

Aim of the Project

The financial system is one of the most important parts of an economy, governing all movements of capital between agents. It also provides useful indicators of the health of an economy and various groups such as government entities, private companies and individuals. Many observers of any economy will therefore pay close attention to developments that could affect the stability of the financial system.

Antilles Economics was engaged by an international body to develop a model of the financial system of Barbados and to conduct an analysis of its stability.

What We Did

This project required a number of modelling techniques, including both regression analysis and statistical analysis. The first step was to build a model that accurately captured the linkages between financial agents and the rest of the economy as well as between financial agents.

We then assessed whether various stakeholders in the economy were responding to legislative changes, economic developments, internal decisions or some combination of these.

Finally, we estimated the extent of the shock that would be required to cause the financial system to fail. We considered three types of shocks: those originating from outside of Barbados; those originating from within Barbados, but outside of the financial system; and, those originating from within the financial system itself.

Impact of the Project

The resulting model and analysis was used by our client to strengthen their surveillance of Barbados. It was also used to help our client determine what additional support it could provide to the Government of Barbados.