Keywords

financial stability, systemic risks, financial system resilience, principal component analysis, Croatia

This paper considers financial stability through the processes of the accumulation and materialisation of systemic risks. To this purpose, the method of principal component analysis on the example of Croatia has been used to construct two composite indicators – a systemic risk accumulation index and an index reflecting the consequences of systemic risk materialisation. In the construction of the indices, the features and risks specific to small open economies were considered. Such an approach to systemic risk analysis facilitates the monitoring and understanding of the degree of financial stability and communication of macroprudential policy makers with the public.