Black Swans and Financial Stability: A Framework for Building Resilience

Daniel Barth () and Stacey Schreft ()
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Daniel Barth: YPFS, Yale School of Management, https://elischolar.library.yale.edu/journal-of-financial-crises/
Stacey Schreft: YPFS, Yale School of Management, https://elischolar.library.yale.edu/journal-of-financial-crises/

Journal of Financial Crises, vol. 8, issue 1, 1-29

Abstract: This article refines the concept of black swans, typically described as highly unlikely and catastrophic events, to be internally consistent. It explores features of the financial system that prevent the eradication of black swans. The main implication is the need to enhance the financial system's resilience to withstand unforeseen events rather than focus on past crises. The article introduces a "resilience principle" for designing official-sector policies that can achieve such goals. The principle calls for policies that are adaptable, universal, and systemic. The article provides examples of policies with these features, assuming that the official sector is not better positioned than the private sector to anticipate the unknown.

Keywords: black swans; financial stability; systemic risk; uncertainty (search for similar items in EconPapers)
JEL-codes: G01 G28 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ysm:ypfsfc:v:8:y::i:1:p:1-29

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