Measuring Macroprudential Risk: Financial Fragility Indexes

Eric Tymoigne

Economics Working Paper Archive from Levy Economics Institute

Abstract: With the Great Recession and the regulatory reform that followed, the search for reliable means to capture systemic risk and to detect macrofinancial problems has become a central concern. In the United States, this concern has been institutionalized through the Financial Stability Oversight Council, which has been put in charge of detecting threats to the financial stability of the nation. Based on Hyman Minsky's financial instability hypothesis, the paper develops macroeconomic indexes for three major economic sectors. The index provides a means to detect the speed with which financial fragility accrues, and its duration; and serves as a complement to the microprudential policies of regulators and supervisors. The paper notably shows, notably, that periods of economic stability during which default rates are low, profitability is high, and net worth is accumulating are fertile grounds for the growth of financial fragility.

Keywords: Financial Fragility; Financial Regulation; Financial Crises; Macroprudential Risk; Debt-Deflation Process; Ponzi Finance (search for similar items in EconPapers)
JEL-codes: E32 G01 G18 G28 G38 (search for similar items in EconPapers)
Date: 2011-03
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-mac, nep-pke, nep-reg and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:lev:wrkpap:wp_654

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