Measuring Macroprudential Risk: Financial Fragility Indexes
AbstractWith 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 InfoPaper provided by Levy Economics Institute, The in its series Economics Working Paper Archive with number wp_654.
Date of creation: Mar 2011
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Web page: http://www.levyinstitute.org
Financial Fragility; Financial Regulation; Financial Crises; Macroprudential Risk; Debt-Deflation Process; Ponzi Finance;
Find related papers by JEL classification:
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- G01 - Financial Economics - - General - - - Financial Crises
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-12 (All new papers)
- NEP-BAN-2011-03-12 (Banking)
- NEP-FDG-2011-03-12 (Financial Development & Growth)
- NEP-MAC-2011-03-12 (Macroeconomics)
- NEP-PKE-2011-03-12 (Post Keynesian Economics)
- NEP-REG-2011-03-12 (Regulation)
- NEP-RMG-2011-03-12 (Risk Management)
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- Greg Hannsgen, 2013. "Heterodox Shocks," Economics Working Paper Archive wp_766, Levy Economics Institute, The.
- Tropeano, D., 2013. "Financial Fragility in the Current European crisis," CITYPERC Working Paper Series 2013-09, Department of International Politics, City University London.
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