Cover IMF Working Papers
Financial Stress, Downturns, and Recoveries
Author: Mr. Subir Lall, Mr. Roberto Cardarelli, and Mr. Selim A Elekdaghttps://orcid.org/0000-0002-1234-4463
Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 100
Language:
English
Publication Date:
01 May 2009
DOI:
https://doi.org/10.5089/9781451872477.001
ISBN:
9781451872477
ISSN:
1018-5941
Pages:
58
Keywords:
WP; stress episode; asset price; monetary policy; banking system; cost of capital
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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This paper examines why some financial stress episodes lead to economic downturns. The paper identifies episodes of financial turmoil using a financial stress index (FSI), and proposes an analytical framework to assess the impact of financial stress-in particular banking distress-on the real economy. It concludes that financial turmoil characterized by banking distress is more likely to be associated with severe and protracted downturns than stress mainly in securities or foreign exchange markets. Economies with more arms-length financial systems appear to be particularly vulnerable to sharp contractions, due to the greater procyclicality of leverage in their banking systems.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund