The reciprocal relationship between systemic risk and real economic activity

Garita, Gus (2011): The reciprocal relationship between systemic risk and real economic activity.

Abstract

The contribution of this paper to the literature is three-fold: (1) it empirically uncovers the directionality and persistence of systemic risk surrounding "the great recession"; (2) it quantifies the reaction of the macro-economy to financial (banking) system shocks; and (3) it unearths feedback effects from the macro-economy to the (in)stability of a banking system. These contributions are attained by looking at the extremal dependence structure among banks, by presenting a multivariate framework for identifying and modeling their joint-tail distributions, and by constructing an aggregate system-wide distress index, a risk-stability index, which quantifies the systemic risk of a bank.

• Item Type: MPRA Paper
• Language: English
• Keywords: Persistence, distress, contagion, panel VAR
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C10 - General; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy; G - Financial Economics > G0 - General > G01 - Financial Crises

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