Defining and detecting financial fragility: New Zealand's experience
Purpose – The purpose of this study is to investigate why “financial fragility” carries different definitions in the economic literature. This is a useful task as the detection of “financial fragility” depends, in part, upon how one defines it. According to Post Keynesian economists, financial fragility is a process that can culminate in financial instability (an event). For mainstream or New Keynesian economists, financial fragility has been traditionally defined as a state in which a shock can trigger instability. More recently, however, mainstream economists have recast their definition as a particular form of financial instability – an event. Each definition of financial fragility is intimately linked to the theoretical foundation upon which it rests. This carries important implications for the ability of policymakers to assess and manage the health of an economy. Design/methodology/approach – The different approaches to the definition and detection of financial fragility are compared using corresponding sets of indicators. Indicators for the Post Keynesian approach are derived from a simple cash-flow accounting framework, in the spirit of Hyman Minsky. The economy selected for study is New Zealand. Findings – According to the Post Keynesian approach, New Zealand has been in a financially fragile state for over three years, a period during which policymakers could have been creating ways to make New Zealand more resilient to the onset of instability. According to the New Keynesian approach, New Zealand may just now be experiencing fragility, giving policymakers much less time to react. Originality/value – This study traces the definitions of financial fragility to their underlying theoretical frameworks and draws the implications for the methods of detecting financial fragility
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 36 (2009)
Issue (Month): 3 (January)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://www.emeraldinsight.com/ijse.htm Email:
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Erik Feijen & Enrico Perotti, 2006.
"The Political Economy of Financial Fragility,"
Hi-Stat Discussion Paper Series
d05-160, Institute of Economic Research, Hitotsubashi University.
- L. Randall Wray, 2006. "Banking, Finance, and Money: A Socioeconomics Approach," Economics Working Paper Archive wp_459, Levy Economics Institute.
- repec:cup:cbooks:9780521564793 is not listed on IDEAS
- Loayza, Norman V. & Ranciere, Romain, 2006.
"Financial Development, Financial Fragility, and Growth,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 38(4), pages 1051-1076, June.
- Norman Loayza & Romain Ranciere, 2002. "Financial Development, Financial Fragility, and Growth," Working Papers Central Bank of Chile 145, Central Bank of Chile.
- Romain Ranciere & Norman Loayza, 2004. "Financial Development, Financial Fragility and Growth," Working Papers 192, Barcelona Graduate School of Economics.
- Loayza, Norman & Ranciere, Romain, 2004. "Financial development, financial fragility, and growth," Policy Research Working Paper Series 3431, The World Bank.
- Norman Loayza & Romain Ranciere, 2002. "Financial Development, Financial Fragility, and Growth," CESifo Working Paper Series 684, CESifo Group Munich.
- Norman Loayza & Romain Ranciere, 2005. "Financial Development, Financial Fragility, and Growth," IMF Working Papers 05/170, International Monetary Fund.
- Norman Loayza & Romain Rancière, 2004. "Financial development, financial fragility and growth," Economics Working Papers 855, Department of Economics and Business, Universitat Pompeu Fabra.
- Minsky, Hyman P, 1969. "Private Sector Asset Management and the Effectiveness of Monetary Policy: Theory and Practice," Journal of Finance, American Finance Association, vol. 24(2), pages 223-38, May.
- Lea Zicchino & Dimitrios Tsomocos & Charles Goodhart & Oriol Aspachs Bracon, 2006.
"Towards a Measure of Financial Fragility,"
FMG Discussion Papers
dp554, Financial Markets Group.
- Oriol Aspachs & Charles A.E. Goodhart & Dimitrios P. Tsomocos & Lea Zicchino, 2006. "Towards a Measure of Financial Fragility," OFRC Working Papers Series 2006fe04, Oxford Financial Research Centre.
- Oriol Aspachs & Charles Goodhart & Dimitrios P. Tsomocos & Lea Zicchino, 2006. "Towards a measure of financial fragility," LSE Research Online Documents on Economics 24508, London School of Economics and Political Science, LSE Library.
- Leslie Hull, 2002. "Foreign-owned banks: Implications for New Zealand's financial stability," Reserve Bank of New Zealand Discussion Paper Series DP2002/05, Reserve Bank of New Zealand.
- Tony Lawson, 1988. "Probability and Uncertainty in Economic Analysis," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 11(1), pages 38-65, October.
- N. Gregory Mankiw, 1986.
"The Allocation of Credit and Financial Collapse,"
NBER Working Papers
1786, National Bureau of Economic Research, Inc.
- Agliari, Anna & Gatti, Domenico Delli & Gallegati, Mauro & Lenci, Stefano, 2006. "The complex dynamics of financially constrained heterogeneous firms," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 784-803, December.
- Dumenil, Gerard & Levy, Dominique, 1990. "Post Depression Trends in the Economic Rate of Return for U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 72(3), pages 406-13, August.
- Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
- Ben Bernanke & Mark Gertler, 1987.
"Financial Fragility and Economic Performance,"
NBER Working Papers
2318, National Bureau of Economic Research, Inc.
- Greenwald, Bruce C & Stiglitz, Joseph E, 1993.
"Financial Market Imperfections and Business Cycles,"
The Quarterly Journal of Economics,
MIT Press, vol. 108(1), pages 77-114, February.
- Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
- Sordi, Serena & Vercelli, Alessandro, 2006. "Financial fragility and economic fluctuations," Journal of Economic Behavior & Organization, Elsevier, vol. 61(4), pages 543-561, December.
- Woodford, Michael, 1986. "Stationary sunspot equilibria in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 40(1), pages 128-137, October.
- Order, Robert Van, 2006. "A Model of Financial Structure and Financial Fragility," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 565-585, April.
- Bordo, Michael D. & Meissner, Christopher M., 2006. "The role of foreign currency debt in financial crises: 1880-1913 versus 1972-1997," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3299-3329, December.
- J. Barkley Rosser, Jr., 2001. "Alternative Keynesian and Post Keynesian Perspectives on Uncertainty and Expectations," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 23(4), pages 545-566, July.
- Kam Hon Chu, 2007. "Financial Crises, Liberalization, and Government Size," Cato Journal, Cato Journal, Cato Institute, vol. 27(1), Winter.
- Franklin Allen & Douglas Gale, 2005. "From Cash-in-the-Market Pricing to Financial Fragility," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 535-546, 04/05.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Gatti, Domenico Delli & Guilmi, Corrado Di & Gaffeo, Edoardo & Giulioni, Gianfranco & Gallegati, Mauro & Palestrini, Antonio, 2005. "A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 489-512, April.
- Hyman P. Minsky, 1984. "Frank Hahn's "Money and Inflation": A Review Article," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 6(3), pages 449-457, April.
- Leni Hunter, 2008. "The relationship between monetary and financial stability," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 71, June.
- Erik Feijen & Enrico Perotti, 2005. "The Political Economy of Financial Fragility," Tinbergen Institute Discussion Papers 05-115/2, Tinbergen Institute.
When requesting a correction, please mention this item's handle: RePEc:eme:ijsepp:v:36:y:2009:i:3:p:287-307. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.