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Systemic risk measures: the simpler the better?

In: Macroprudential regulation and policy

  • María Rodríguez-Moreno

    (Universidad Carlos III de Madrid)

  • Juan Ignacio Peña

    (Universidad Carlos III de Madrid)

This paper estimates and compares two groups of high-frequency market-based systemic risk measures using European and US interbank rates, stock prices and credit derivatives data from 2004 to 2009. Measures belonging to the macro group gauge the overall tension in the financial sector and micro group measures rely on individual institution information to extract joint distress. We rank the measures using three criteria: (i) Granger causality tests, (ii) Gonzalo and Granger metric, and (iii) correlation with an index of systemic events and policy actions. We find that the best systemic measure in the macro group is the first principal component of a portfolio of Credit Default Swap (CDS) spreads whereas the best measure in the micro group is the multivariate densities computed from CDS spreads. These results suggest that the measures based on CDSs outperform measures based on interbank rates or stock market prices.

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This chapter was published in:
  • Bank for International Settlements, 2011. "Macroprudential regulation and policy," BIS Papers, Bank for International Settlements, number 60.
  • This item is provided by Bank for International Settlements in its series BIS Papers chapters with number 60-04.
    Handle: RePEc:bis:bisbpc:60-04
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