An updated Model of Financial Fragility based on General Equilibrium Analysis

Aktualizace modelu finanční křehkosti založeného na analýze všeobecné rovnováhy

Ondřej Machek and Luboš Smrčka

Acta Oeconomica Pragensia, 2015, vol. 2015, issue 4, 23-42

Abstract: Financial fragility and instability of banking sectors has received increased academic attention due to recent financial crises around the world. The objective of the article is to extend and adapt a previously created financial fragility model of the Czech financial sector in order to reflect its specific conditions. It introduces the concept of minimum required reserves and uses consistent sources of data collected from annual reports of Czech banks in 2013. Besides the prediction of default of households, the model also allows a prediction of key macroeconomic variables such as the inflation and unemployment rates. However, some of the issues of this class of models - in particular, the impossibility to measure some of its exogenous parameters - remain unresolved and present a challenge for the future development of the model.

Keywords: financial fragility; banking sector; general equilibrium; Czech Republic (search for similar items in EconPapers)
JEL-codes: C68 E4 E5 G11 (search for similar items in EconPapers)
Date: 2015
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DOI: 10.18267/j.aop.479

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