What Can Academics Contribute to the Study of Financial Stability?

Charles A. E. Goodhart
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Charles A. E. Goodhart: London School of Economics

The Economic and Social Review, 2005, vol. 36, issue 3, 189-203

Abstract: There were hardly any banking crises between 1939 and 1971, so their later reemergence came as a surprise. Central bank supervisors responded practically by discovering and encouraging the adoption of current best practice in risk management by individual banks, without much theoretical input, whereas economists have mostly focused on models which abstract from default. But default is central to analysis of financial stability. Shubik pioneered introducing default into formal models, and we aim to develop this further. Meanwhile, estimating the probability of default (PD) for individual, or groups of, banks is central to the Basel II process.

Date: 2005
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