Measuring and mitigating systemic risks: how the forging of new alliances between central bank and academic economists legitimize the transnational macroprudential agenda

Matthias Thiemann, Carolina Raquel Melches and Edin Ibrocevic

Review of International Political Economy, 2021, vol. 28, issue 6, 1433-1458

Abstract: After the great financial crisis of 2007–2009, central banks were handed a macroprudential mandate to contain systemic risks, a mandate seen as endangering their independence due to expected distributional conflicts. At the same time, depoliticization through scientific expertise was largely foreclosed, as systemic risk was a largely undefined concept. This paper focuses on how central banks dealt with this conundrum. It examines the scientific debate on systemic risk and macroprudential regulation post-crisis, focusing on the debate’s impact on final regulation. Employing author-topic-modeling on a unique dataset of 2397 published economic papers on the relevant topics, we detect the formation of a new alliance between central bankers and academic economists working jointly on developing systemic risk measures. Centered around a hinge of systemic risk contribution by individual banks, this new alliance expresses itself by incorporating the macroprudential concerns of practitioners into abstract market-based systemic risk measures. These measures develop incrementally, using and repurposing techniques from financial economics pre-crisis to legitimize and justify macroprudential interventions post-crisis. This alliance allows us to account for the incremental change witnessed post-crisis and point to its potential for long-term fundamental change.

Date: 2021
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DOI: 10.1080/09692290.2020.1779780

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