Transparency, Risk Management and International Financial Fragility
Discussions of financial risk often fail to distinguish between risks that are consciously borne and those that are not. To understand the breeding conditions for financial crises the prime focus of concern should not be simply on large risk-taking per se, but on the unintended, or unanticipated accumulation of large risks by individuals, institutions or governments, often through the lack of knowledge or understanding of the risks by stakeholders and overseers of those entities. This paper analyses specific situations in which significant unanticipated and unintended financial risks are accumulated. It focuses, in particular, on the implicit guarantees that governments extend to banks and other financial institutions, which may result in the accumulation, often unconscious from the viewpoint of the government, of unanticipated risks in the balance sheet of the public sector. The paper also discusses how risk exposures can be measured, hedged and transferred through the use of derivatives, swap contracts, and other contractual agreements with specific reference to emerging markets.
|Date of creation:||Jun 2003|
|Date of revision:|
|Publication status:||published as Draghi, Mario, Francesco Giavazzi, and Robert C. Merton. Transparency, risk management and international financial fragility Geneva Reports on the World Economy, vol. 4. Geneva: International Center for Monetary and Banking Studies and London: Centre for Economic Policy Research, 2004.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
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.:
- Robert C. Merton & Zvi Bodie, 1992. "On the Management of Financial Guarantees," Financial Management, Financial Management Association, vol. 21(4), Winter.
- Caballero, Ricardo J. & Panageas, Stavros, 2008.
"Hedging sudden stops and precautionary contractions,"
Journal of Development Economics,
Elsevier, vol. 85(1-2), pages 28-57, February.
- Ricardo J. Caballero & Stavros Panageas, 2003. "Hedging Sudden Stops and Precautionary Contractions," NBER Working Papers 9778, National Bureau of Economic Research, Inc.
- Burnside, Craig & Eichenbaum, Martin & Rebelo, Sergio, 2004. "Government guarantees and self-fulfilling speculative attacks," Journal of Economic Theory, Elsevier, vol. 119(1), pages 31-63, November.
- Jeromin Zettelmeyer & Olivier Jeanne, 2002. "â€œOriginal Sin,â€ Balance Sheet Crises, and the Roles of International Lending," IMF Working Papers 02/234, International Monetary Fund.
- Dale F. Gray & Robert C. Merton & Zvi Bodie, 2006. "A New Framework for Analyzing and Managing Macrofinancial Risks of an Economy," NBER Working Papers 12637, National Bureau of Economic Research, Inc.
- Ricardo J. Caballero, 2003. "The Future of the IMF," American Economic Review, American Economic Association, vol. 93(2), pages 31-38, May.
- Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
- Claudio Borio & Craig Furfine & Philip Lowe, 2001. "Procyclicality of the financial system and financial stability: issues and policy options," BIS Papers chapters, in: Bank for International Settlements (ed.), Marrying the macro- and micro-prudential dimensions of financial stability, volume 1, pages 1-57 Bank for International Settlements.
- Ricardo J. Caballero & Arvind Krishnamurthy, 2000. "Dollarization of Liabilities: Underinsurance and Domestic Financial Underdevelopment," NBER Working Papers 7792, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:9806. 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: ()
If references are entirely missing, you can add them using this form.