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Measuring Macroprudential Risk: Financial Fragility Indexes

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  • Éric Tymoigne

Abstract

With the Great Recession and the regulatory reform that followed, the search for reliable means to capture systemic risk and to detect macrofinancial problems has become a central concern. In the United States, this concern has been institutionalized through the Financial Stability Oversight Council, which has been put in charge of detecting threats to the financial stability of the nation. Based on Hyman Minsky's financial instability hypothesis, the paper develops macroeconomic indexes for three major economic sectors. The index provides a means to detect the speed with which financial fragility accrues, and its duration; and serves as a complement to the microprudential policies of regulators and supervisors. The paper notably shows, notably, that periods of economic stability during which default rates are low, profitability is high, and net worth is accumulating are fertile grounds for the growth of financial fragility.

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Bibliographic Info

Paper provided by Levy Economics Institute, The in its series Economics Working Paper Archive with number wp_654.

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Date of creation: Mar 2011
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Handle: RePEc:lev:wrkpap:wp_654

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Web page: http://www.levyinstitute.org

Related research

Keywords: Financial Fragility; Financial Regulation; Financial Crises; Macroprudential Risk; Debt-Deflation Process; Ponzi Finance;

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References

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  1. Luiz Fernando R. De Paula & Antonio José Alves, Jr., 2000. "External Financial Fragility and the 1998-1999 Brazilian Currency Crisis," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 22(4), pages 589-617, July.
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Cited by:
  1. Tropeano, D., 2013. "Financial Fragility in the Current European crisis," CITYPERC Working Paper Series 2013-09, Department of International Politics, City University London.
  2. Greg Hannsgen, 2013. "Heterodox Shocks," Economics Working Paper Archive wp_766, Levy Economics Institute, The.
  3. Konstantinos I. Loizos, 2014. "How Financial Innovation Might Cancel Out Bank Regulation Along Financial Cycles. A Keynes’s State of Confidence Interpretation," Working Papers PKWP1403, Post Keynesian Economics Study Group (PKSG).

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