Measuring macroprudential risk through financial fragility: a Minskian approach
The paper uses the analytical framework developed by Hyman P. Minsky to construct an index of financial fragility for residential housing in the United States, the United Kingdom, and France. In the process, a clear difference is made between financial fragility, bubble, and fraud. The goal is to capture the growing interdependence between debt and asset price on the upside. The index is able to capture the rapid growth of financial fragility in residential housing from the early 2000s and an usually high level of financial fragility from 2004 in the United States. However, the construction of the index reveals that the data available are of limited quantity and quality for the purpose at hand. If the Financial Stability Oversight Council is serious about measuring systemic risk, better data about cash flows and loan underwriting should be collected in order to get an idea of the quality of leverage. This quality is measured by focusing on the means used to service debts instead of ability and willingness to service debt per se (i.e. credit risk).
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Volume (Year): 36 (2014)
Issue (Month): 4 (July)
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References listed on IDEAS
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- Oriol Aspachs & Charles Goodhart & Dimitrios Tsomocos & Lea Zicchino, 2007.
"Towards a measure of financial fragility,"
Annals of Finance,
Springer, vol. 3(1), pages 37-74, January.
- 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.
- Yasushi Suzuki, 2005. "Uncertainty, financial fragility and monitoring: Will Basle-type pragmatism resolve the Japanese banking crisis?," Review of Political Economy, Taylor & Francis Journals, vol. 17(1), pages 45-61.
- 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.
- Reinold, Kate, 2011. "Housing equity withdrawal since the financial crisis," Bank of England Quarterly Bulletin, Bank of England, vol. 51(2), pages 127-133.
- L. Randall Wray, 2009. "The rise and fall of money manager capitalism: a Minskian approach," Cambridge Journal of Economics, Oxford University Press, vol. 33(4), pages 807-828, July.
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