The roll over risk resulting from short term . More generally, our paper is also related to a strand of literature stressing the impor- tance of externalities among banks as a source of systemic risk (see and , 2009, for a survey on contagion in…
Economic Systems
In this subdiscipline:
2,292 papers
Popular papers
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Modern financial systems exhibit a high degree of interdependence. There are different possible sources of connections between financial institutions, stemming from both the asset and the liability side of their balance sheet. For instance, banks…
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This study examines the intra-industry information transfer effect of credit events, as captured in the credit default swaps (CDS) and stock markets. Positive correlations across CDS spreads imply that contagion effects dominate, whereas negative…
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In the run-up to the recent financial crisis, an increasingly elaborate set of financial instruments emerged, intended to optimize returns to individual institutions with seemingly minimal risk. Essentially no attention was given to their possible…
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I develop a model of financial networks where linkages not only spread contagion, but also induce private-sector bailouts in which liquid banks bail out illiquid banks because of the threat of contagion. Introducing this bailout possibility, I show…
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We propose a new approach to assess systemic financial stability of a banking system using standard tools from modern risk management in combination with a network model of interbank loans. We apply our model to a unique data set of all Austrian…
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I shall reconsider human knowledge by starting from the fact that we can know more than we can tell, writes Michael Polanyi, whose work paved the way for the likes of Thomas Kuhn and Karl Popper. The Tacit Dimension argues that tacit…
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This article provides an empirical decomposition of the default, liquidity, and tax factors that determine expected corporate bond returns. In particular, the risk premium associated with a default event is estimated. The intensity-based model is…
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Today's financial regulatory systems assume that regulations which make individual banks safe also make the financial system safe. The eleventh Geneva Report on the World Economy shows that this thinking is flawed. Actions that banks take to make…
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We study economic growth and inflation at different levels of government and external debt. Our analysis is based on new data on forty-four countries spanning about two hundred years. The dataset incorporates over 3,700 annual observations covering…
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There is common ground in analysing financial systems and ecosystems, especially in the need to identify conditions that dispose a system to be knocked from seeming stability into another, less happy state.
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Nature 238, 413 - 414 (18 August 1972); doi:10.1038/238413a0. a be ROBERT M. MAY . Institute for
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Systemic risk refers to the propagation of a bank's economic distress to other economic agents linked to that bank through financial transactions. Banking authorities often prevent systemic risk through an implicit insurance of interbank claims, or…
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The multidimensional view of well-being is receiving growing attention, both in academic research and policy-oriented analysis. This paper examines empirical strategies to measure poverty and inequality in multiple domains, concentrating on two…
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David Romer&8217;s Advanced Macroeconomics, 3e is the standard text and the starting point for graduate macro courses and helps lay the groundwork for students to begin doing research in macroeconomics and monetary economics. A series of formal…
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We simulate interbank lending. Each bank faces fluctuations in liquid assets and stochastic investment opportunities that mature with delay, creating the risk of liquidity shortages. An interbank market lets participants pool this risk but also…
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Systemic risk is modeled as the endogenously chosen correlation of returns on assets held by banks. The limited liability of banks and the presence of a negative externality of one bank's failure on the health of other banks give rise to a systemic…
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This paper develops an analytical model of contagion in financial networks with arbitrary structure. We explore how the probability and potential impact of contagion is influenced by aggregate and idiosyncratic shocks, changes in network structure…
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Financial contagion is modeled as an equilibrium phenomenon. Because liquidity preference shocks are imperfectly correlated across regions, banks hold interregional claims on other banks to provide insurance against liquidity preference shocks. When…
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