Using confirmation factor analysis to construct a financial stability index for Vietnam

Abstract

This study aims to construct an aggregate financial stability index to monitor and manage the financial system of Vietnam. The research, applying the confirmatory factor analysis (CFA), shows that the financial stability index of Vietnam is based on three indicators: financial instability, development of the financial system and solvency of which the development of the financial system that affects the financial stability of Vietnam carries the highest weight. Thus, a financial stability index based on the above is considered a powerful tool for the authorities to monitor financial risks, forecast financial stability and manage the financial system of Vietnam.