On Endogenous Risk, the Amplification Effects of Financial Systems and Macro Prudential Policies

Giovanni Majnoni and Andrew Powell

No 4726, Research Department Publications from Inter-American Development Bank, Research Department

Abstract: The recent global financial crisis has put the spotlight on macro-prudential policies to protect firms and households from problems emanating from the financial sector. This paper proposes an analytical framework that combines exogenous and endogenous risks, the latter seen as stemming from frictions in financial markets. Arguing that endogenous risks may be systemic and costly, the paper employs a database of emerging market corporate bond spreads and finds evidence that endogenous risks are present and have amplified the effects of financial crises. Larger financial systems are found to exacerbate the impact of crises, and weaker financial systems are found to exacerbate particularly the impact of banking crises. The results suggest that policymakers should monitor time-varying systemic risks using both price and quantity signals and take actions in good times to mitigate potential amplifying effects at times of stress.

JEL-codes: E32 E44 E58 F30 G30 (search for similar items in EconPapers)
Date: 2011-11
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.iadb.org/research/pub_hits.cfm?pub_id=36520073 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.iadb.org/research/pub_hits.cfm?pub_id=36520073 [301 Moved Permanently]--> https://www.iadb.org/research/pub_hits.cfm?pub_id=36520073)

Related works:
Working Paper: On Endogenous Risk, the Amplification Effects of Financial Systems and Macro Prudential Policies (2011)
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:idb:wpaper:4726

Access Statistics for this paper

More papers in Research Department Publications from Inter-American Development Bank, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Felipe Herrera Library ().