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Towards a measure of financial fragility

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

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Identification Number: 554

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.lse.ac.uk
Additional Information: © 2006 The Authors
Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
Date Deposited: 16 Jul 2009 14:03
Last Modified: 28 Mar 2017 14:38
URI: http://eprints.lse.ac.uk/id/eprint/24508

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