Achieving financial stability during a liquidity crisis: a multi-objective approach

Edoardo Gaffeo and Lucio Gobbi

Risk Management, 2021, vol. 23, issue 1, No 3, 48-74

Abstract: Abstract Following the financial crisis of 2007, regulators undertook an ample process of redefinition of the necessary objectives to achieve financial stability. Nevertheless, it is highly likely that the achievement of a specific stability goal precludes the possibility of pursuing other stability goals during financial turmoil. Once considered in this way, financial stability can be immediately translated into a multi-objective decision-making problem. In this paper, we analyze some possible trade-offs faced by a regulator in order to preserve financial stability during a liquidity crisis. To this end, we employ a model of liquidity cascades applied to credit networks and we determine the best among different policy options relying on the MOORA (multi-objective optimization on the basis of ratio analysis) method.

Keywords: Financial stability; Multi-objective optimization; Credit networks; Liquidity crunch cascades; C63; D85; G21 (search for similar items in EconPapers)
JEL-codes: C63 D85 G21 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://link.springer.com/10.1057/s41283-021-00067-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:risman:v:23:y:2021:i:1:d:10.1057_s41283-021-00067-6

Ordering information: This journal article can be ordered from
https://www.palgrave.com/gp/journal/41283

DOI: 10.1057/s41283-021-00067-6

Access Statistics for this article

Risk Management is currently edited by Igor Loncarski

More articles in Risk Management from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().