Towards a measure of financial fragility

Aspachs, Oriol, Goodhart, Charles, Tsomocos, Dimitrios P. and Zicchino, Lea (2006) Towards a measure of financial fragility. Financial Markets Group Discussion Papers (554). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

This paper proposes a measure of financial fragility that is based on economic welfare in a general equilbrium model calibrated against UK data. The model comprises a household sector, three active heterogeneous banks, a central bank/regulator, incomplete markets, and endogenous default. We address the impact of monetary and regulatory policy, credit and capital shocks in the real and financial sectors and how the response of the economy to shocks relates to our measure of financial fragility. Finally we use panel VAR techniques to investigate the relationships between the factors that characterise financial fragility in our model, i.e. banks’ probabilities of default and banks’ profits - to a proxy of welfare.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://fmg.ac.uk
Additional Information:	© 2006 The Authors
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HG Finance H Social Sciences > HB Economic Theory
JEL classification:	C - Mathematical and Quantitative Methods > C3 - Econometric Methods: Multiple; Simultaneous Equation Models; Multiple Variables; Endogenous Regressors > C33 - Models with Panel Data G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C68 - Computable General Equilibrium Models G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
Date Deposited:	16 Jul 2009 14:03
Last Modified:	13 Sep 2024 20:00
URI:	http://eprints.lse.ac.uk/id/eprint/24508

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