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  • Adrian, Tobias

    (Federal Reserve Bank of New York)

  • Brunnermeier, Markus K.

    (Princeton University)

We propose a measure for systemic risk, ΔCoVaR, defined as the difference between the conditional value at risk (CoVaR) of the financial system conditional on an institution being in distress and the CoVaR conditional on the median state of the institution. Our ΔCoVaR estimates show that characteristics such as leverage, size, maturity mismatch, and asset price booms significantly predict systemic risk contribution. We provide out-of-sample forecasts of a countercyclical, forward-looking measure of systemic risk and show that the 2006:Q4 value of this measure would have predicted more than one-third of realized ΔCoVaR during the financial crisis.

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Paper provided by Federal Reserve Bank of New York in its series Staff Reports with number 348.

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Length: 53 pages
Date of creation: 2008
Date of revision: 01 Sep 2014
Handle: RePEc:fip:fednsr:348
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