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Systemic Risk Modeling: How Theory Can Meet Statistics
Author:
Mr. Raphael A Espinoza
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,
Miguel A. Segoviano
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Ji Yan null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2020: Issue 054
Language:
English
Publication Date:
13 Mar 2020
DOI:
https://doi.org/10.5089/9781513536170.001
ISBN:
9781513536170
ISSN:
1018-5941
Pages:
39
Keywords:
WP; central bank
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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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund