The paper recommends that decision-makers at Central Banks continue to pay attention to the financial stability governance framework and communication strategies. To achieve the desired objectives of macroprudential policy, interest has arisen in the role of the Central Bank and the Financial Stability Committee in ensuring coordination between economic policies to avoid conflict between them. This article examines the impact of differences in financial stability governance frameworks between Arab countries, and the role of the Central Bank in preventing or mitigating the impact of banking crises.
The study found that financial stability governance frameworks together with financial stability communication strategies contribute to smoothing the fluctuations of the financial cycle. Theoretical framework of the interaction between financial stability governance and communication strategies and the impact on the financial cycle. ǥǡ௧ are the characteristics of the Central Bank in the country, including: the framework for financial stability governance and the level of transparency and independence.
Where FSS represents financial stability sentiment according to the index used by (Correa, Garud, Londono, and Milang, 2021). This index depends on the amount of negative and positive data in each country's financial stability reports. In the period (t+h ), the gap between credit and GDP will be used as a variable measuring the evolution of the financial cycle.
The conditions of the financial cycle (ܨܥǡ௧) will depend on the policy decisions of the central bank (PA); in the period (t+I), as well as on financial stability management.
Data and variables
Governance Framework Indicators: This dimension was added to capture the changes that have occurred regarding financial stability governance in the country, and these characteristics measure the following: (1) the presence of a financial stability committee within the Central Bank (2 ) if the committee exists, the extent to which it has the ability to implement macroprudential policy tools and coordination with monetary policy, (3) the extent to which the Central Bank's supervisory umbrella has expanded to include non-bank financial institutions. In this context, dummy variables have been used to measure the power of the Central Bank's powers and independence in making decisions to increase financial and economic stability in the country. The presence of this committee is a strengthening of the governance system, supports the power of decisions made by Central Banks and increases the coordination between monetary and macroprudential policies in a way that increases the flexibility of the banking and financial sector.
Regarding the second variable, it will measure the extent to which the Financial Stability Committee is able to use macroprudential policy tools, since the value 1 will be given if it has the ability to activate/deactivate the use of these tools, if they are asset-based. As for the third variable, it represents the degree to which there is a coordination between the Central Bank and the supervisory authorities of the non-banking financial sector in the preservation of the financial system and the support of coordinated decisions in this direction, either in the membership of the commission. official bodies related to the financial sector such as the Ministry of Finance and the Insurance Supervisory Authority, the Deposit Insurance Corporation, the Capital Markets Authority and others, or/and if the supervision of the Central Bank includes the non-banking financial sector, such as insurance companies, microfinance institutions, financial leasing companies and other specialized lending companies. A value of 1 is given if there are official bodies related to the financial sector within the Financial Stability/Crisis Management Committee and/or if non-bank financial institutions are subject to Central Bank supervision, and zero otherwise.
Conditions of Financial Stability: The credit gap will be used, i.e. the difference between the credit to GDP ratio and the long-term trend, which is considered as an assessment of the evolution of the financial cycle (Borio, 2014). Source: The author's calculations, in addition to the data for the financial stability committee, we obtained from the websites of the Central Bank. The results showed that the volatility of the FSS index and the credit-to-GDP gap differ between countries, as indicated by the standard deviation values.
In addition, there is evidence of inconsistencies in the average and volatility of the factors that influence fluctuations in the financial cycle.
Methodology
The impact of financial stability governance and financial stability communication strategy on the financial cycle
Table (2) shows the results of estimating the econometric equation No. 6), where panel (1) shows the results of estimating the model on the impact of the communication strategy on the evolution of the financial cycle without taking into account take into account the issue of financial stability governance. While panel (2) shows the results of estimating the impact of the communication strategy in the presence of a financial stability committee within the Central Bank. Finally, panel (4) shows the results of estimating the impact of the communication strategy, in the presence of a financial stability committee within the Central Bank, with intervention powers and representatives on the committee on behalf of the supervisory authorities of the non-banking financial sector .
We will focus on the variables that measure the impact of financial stability governance and communication strategies on the fluctuations of the financial cycle. The results show that there is a significant negative relationship between the FSS index and the credit-to-GDP gap (FC) when considering the aspect of financial stability governance, and this demonstrates the importance of having a financial stability commission along with a communication strategy within the Central Bank, which leads to the reduction of systemic risks and fluctuations in the financial cycle. In other words, central banks with the governance features for financial stability can effectively control the evolution of the financial cycle if they cause a deterioration in financial stability sentiment (FSS).
The impact of the financial stability communication strategy on the fluctuations of the financial cycle
In all estimates, we take into account static country effects that do not change over time and are unrelated to governance. That is, for Central Banks that do not have any of the characteristics of management, sentiment deteriorates more, and fewer policy actions are implemented compared to Central Banks that have the characteristics of financial stability management. That is, as a key conclusion, central banks without control characteristics are less likely to prevent fluctuations in the financial cycle.
Table (3): Predictive ability of the Central Bank's communication strategy regarding financial cycle fluctuations. Regarding the impact of the Central Bank's communication strategy on the fluctuations of the financial cycle, table (4) gives the results of the evaluation of the model (7), where the results show some. A decline in the financial stability sentiment index (FSS) without a financial stability governance framework will lead to fluctuations in the financial cycle.
Regarding the interaction between the Financial Stability Sentiment Index (FSS) and the characteristics of financial stability management and its impact on the financial cycle, the value of ଶ showed a significant negative relationship between the FSS index and financial cycle fluctuations in the case that the characteristics of financial stability management are available at the central banks, which means that the presence of a management framework for financial stability at central banks reduces the occurrence of fluctuations in the financial cycle.
Conclusion
For this purpose, the communication policy of the Central Bank has been measured through the Financial Stability Sentiment Index, which depends on the content of the Financial Stability Report published by twelve Arab countries for the period. Financial stability in the Central Bank within certain characteristics, and then the interaction between them and its impact on the fluctuations of the financial cycle were studied. The results of this study support the findings of the study (Londono et. al, 2021) regarding the importance of strengthening the financial stability governance framework for effective communication strategies in reducing the occurrence of financial crises.
