Systemic Risk Modeling: How Theory Can Meet Statistics PDF Download

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Systemic Risk Modeling: How Theory Can Meet Statistics

Systemic Risk Modeling: How Theory Can Meet Statistics PDF Author: Mr.Raphael A Espinoza
Publisher: International Monetary Fund
ISBN: 1513536176
Category : Business & Economics
Languages : en
Pages : 39

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Book Description
We propose a framework to link empirical models of systemic risk to theoretical network/ general equilibrium models used to understand the channels of transmission of systemic risk. The theoretical model allows for systemic risk due to interbank counterparty risk, common asset exposures/fire sales, and a “Minsky" cycle of optimism. The empirical model uses stock market and CDS spreads data to estimate a multivariate density of equity returns and to compute the expected equity return for each bank, conditional on a bad macro-outcome. Theses “cross-sectional" moments are used to re-calibrate the theoretical model and estimate the importance of the Minsky cycle of optimism in driving systemic risk.