International aggregate risk: Effects on financial stability

Marcella Lucchetta

Economics Letters, 2024, vol. 240, issue C

Abstract: The increasing interconnectedness of financial and economic systems has led to the emergence of global risks that can impact financial stability. In this paper, we explore how aggregate risk on a global scale can affect the stability of financial systems. We present a simple model that considers an exogenous parameter indicating the concentration of international credit risk in both domestic and foreign banking systems. When this parameter is high, the model is vulnerable to aggregate risk. Our research shows that if multiple countries are impacted by the same shock, diversification of risk becomes impossible.

Keywords: Aggregate risk; Financial stability; Real interest rates (search for similar items in EconPapers)
JEL-codes: E44 F36 G01 G15 G21 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:240:y:2024:i:c:s016517652400257x

DOI: 10.1016/j.econlet.2024.111773

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