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Global Market Conditions and Systemic Risk

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  • Ms. Brenda Gonzalez-Hermosillo
  • Mr. Heiko Hesse

Abstract

This paper examines several key global market conditions, such as a proxy for market uncertainty and measures of interbank funding stress, to assess financial volatility and the likelihood of crisis. Using Markov regime-switching techniques, it shows that the Lehman Brothers failure was a watershed event in the crisis, although signs of heightened systemic risk could be detected as early as February 2007. In addition, we analyze the role of global market conditions to help determine when governments should begin to exit their extraordinary public support measures.

Suggested Citation

  • Ms. Brenda Gonzalez-Hermosillo & Mr. Heiko Hesse, 2009. "Global Market Conditions and Systemic Risk," IMF Working Papers 2009/230, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2009/230
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    References listed on IDEAS

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    Cited by:

    1. Eugenio Cerutti & Stijn Claessens & Patrick McGuire, 2012. "Systemic Risks in Global Banking: What Available Data Can Tell Us and What More Data Are Needed?," NBER Chapters, in: Risk Topography: Systemic Risk and Macro Modeling, pages 235-260, National Bureau of Economic Research, Inc.
    2. Kim, Myeong Hyeon & Kim, Baeho, 2014. "Systematic cyclicality of systemic bubbles: Evidence from the U.S. commercial banking system," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 281-297.
    3. Eugenio Cerutti & Stijn Claessens & Patrick McGuire, 2012. "Systemic risk in global banking: what can available data tell us and what more data are needed?," BIS Working Papers 376, Bank for International Settlements.
    4. Dufrénot, Gilles & Mignon, Valérie & Péguin-Feissolle, Anne, 2011. "The effects of the subprime crisis on the Latin American financial markets: An empirical assessment," Economic Modelling, Elsevier, vol. 28(5), pages 2342-2357, September.
    5. Akdi, Yilmaz & Varlik, Serdar & Berument, M. Hakan, 2020. "Duration of Global Financial Cycles," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 549(C).
    6. Basher, Syed Abul & Haug, Alfred A. & Sadorsky, Perry, 2017. "The impact of oil-market shocks on stock returns in major oil-exporting countries: A Markov-switching approach," MPRA Paper 81638, University Library of Munich, Germany.
    7. Hatem Salah & Marwa Souissi, 2016. "Financial Stability and Macro Prudential Regulation: Policy Implication of Systemic Expected Shortfall Measure," Working Papers 985, Economic Research Forum, revised Apr 2016.
    8. Neaime, Simon, 2016. "Financial crises and contagion vulnerability of MENA stock markets," Emerging Markets Review, Elsevier, vol. 27(C), pages 14-35.
    9. Rainer Masera, 2011. "Taking the moral hazard out of banking: the next fundamental step in financial reform," PSL Quarterly Review, Economia civile, vol. 64(257), pages 105-142.
    10. Kim, Bong-Han & Kim, Hyeongwoo & Lee, Bong-Soo, 2015. "Spillover effects of the U.S. financial crisis on financial markets in emerging Asian countries," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 192-210.
    11. Basher, Syed Abul & Haug, Alfred A. & Sadorsky, Perry, 2018. "The impact of oil-market shocks on stock returns in major oil-exporting countries," Journal of International Money and Finance, Elsevier, vol. 86(C), pages 264-280.
    12. Azamat Abdymomunov, 2013. "Regime-switching measure of systemic financial stress," Annals of Finance, Springer, vol. 9(3), pages 455-470, August.
    13. Stefano Fenoaltea, 2010. "The reconstruction of historical national accounts: the case of Italy," PSL Quarterly Review, Economia civile, vol. 63(252), pages 77-96.
    14. Naohiko Baba & Ilhyock Shim, 2011. "Dislocations in the won-dollar swap markets during the crisis of 2007-09," BIS Working Papers 344, Bank for International Settlements.
    15. Tinoco, Marcos, 2020. "Modelando la volatilidad del diferencial TED: Una evaluación de pronósticos de modelos con heterocedasticidad condicional [Modeling the volatility of the TED spread: An assessment of model forecast," MPRA Paper 108086, University Library of Munich, Germany.
    16. Sari, Ramazan & Soytas, Ugur & Hacihasanoglu, Erk, 2011. "Do global risk perceptions influence world oil prices?," Energy Economics, Elsevier, vol. 33(3), pages 515-524, May.
    17. Mr. Nicolas R Blancher & Ms. Srobona Mitra & Mrs. Hanan Morsy & Mr. Akira Otani & Tiago Severo & Ms. Laura Valderrama, 2013. "Systemic Risk Monitoring ("SysMo") Toolkit—A User Guide," IMF Working Papers 2013/168, International Monetary Fund.
    18. International Monetary Fund, 2011. "Indonesia: Selected Issues," IMF Staff Country Reports 2011/310, International Monetary Fund.
    19. Xiao Jing Cai & Shuairu Tian & Shigeyuki Hamori, 2016. "Dynamic correlation and equicorrelation analysis of global financial turmoil: evidence from emerging East Asian stock markets," Applied Economics, Taylor & Francis Journals, vol. 48(40), pages 3789-3803, August.
    20. Csontó, Balázs, 2014. "Emerging market sovereign bond spreads and shifts in global market sentiment," Emerging Markets Review, Elsevier, vol. 20(C), pages 58-74.

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    Keywords

    WP; market; market condition; forex; Ted;
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