Assessing vulnerabilities to financial shocks in some key global economies

Lukasz Rachel and Jack Fisher ()
Additional contact information
Jack Fisher: LSE

No 636, Bank of England working papers from Bank of England

Abstract: This paper describes a quantitative, data-driven method to assess vulnerabilities in a range of countries. We provide country-level vulnerability indices which can be used to gauge the level of fragility at any point in time. In particular, our results suggest that in the run-up to the Global Financial Crisis, vulnerabilities rose to extremely high levels in the United States, but were only a little above average in Europe and had actually receded across much of Asia. The picture has changed dramatically during the recovery, however, with vulnerabilities close to record-highs by end-2015 in some of the Asian economies. We document numerous practical challenges that arise when developing such a toolkit, the main one being to know the trend — the ‘neutral’ level — of a financial variable (for example credit-to-GDP). In that context, one important contribution of this paper is to document the robustness of vulnerability measures to different judgements about the trend level of financial variables. We find that for most countries results are fairly robust to different views of the underlying trend, but importantly that this robustness is not universal. In particular, at the moment differing views of what ‘the new normal’ is suggest dramatically different assessments of the level of fragility in the United States and South Korea.

Keywords: Financial vulnerabilities; risks; crisis (search for similar items in EconPapers)
JEL-codes: G10 G15 G17 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2016-12-16
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bankofengland.co.uk/-/media/boe/files/ ... 72313D3CB7717D2B1049 Full text (application/pdf)

Related works:
Journal Article: Assessing vulnerabilities to financial shocks in some key global economies (2017)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0636

Access Statistics for this paper

More papers in Bank of England working papers from Bank of England Bank of England, Threadneedle Street, London, EC2R 8AH. Contact information at EDIRC.
Bibliographic data for series maintained by Digital Media Team ().