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Searching for a Metric for Financial Stability

O. Aspachs, C. Goodhart, M. Segoviano, Dimitrios Tsomocos and Lea Zicchino ()

OFRC Working Papers Series from Oxford Financial Research Centre

Abstract: We propose a metric of financial stability that is a weighted average of the probability of default and the equity of each country. The weights are obtained in the VAR and must reflect that the welfare changes due to financial instability are produced primarily through changes of the probability of default and secondarily through changes of the equity value. The metric is based on the definition of financial instability suggested by Tsomocos (2003 a and b) and Goodhart, Sunirand and Tsomocos (2006).

Pages: 38
Date: 2006
New Economics Papers: this item is included in nep-fmk and nep-rmg
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