Systemic Risk Modeling: How Theory Can Meet Statistics
Raphael Espinoza,
Miguel Segoviano and
Ji Yan
No 2020/054, IMF Working Papers from International Monetary Fund
Abstract:
We propose a framework to link empirical models of systemic risk to theoretical network/ general equilibrium models used to understand the channels of transmission of systemic risk. The theoretical model allows for systemic risk due to interbank counterparty risk, common asset exposures/fire sales, and a “Minsky" cycle of optimism. The empirical model uses stock market and CDS spreads data to estimate a multivariate density of equity returns and to compute the expected equity return for each bank, conditional on a bad macro-outcome. Theses “cross-sectional" moments are used to re-calibrate the theoretical model and estimate the importance of the Minsky cycle of optimism in driving systemic risk.
Keywords: WP; central bank (search for similar items in EconPapers)
Pages: 39
Date: 2020-03-13
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2020/054
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