Please use this identifier to cite or link to this item: https://doi.org/10.1073/pnas.1903879116
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dc.titleMeasuring the probability of a financial crisis
dc.contributor.authorEngle, Robert F
dc.contributor.authorRuan, Tianyue
dc.date.accessioned2022-06-29T03:27:00Z
dc.date.available2022-06-29T03:27:00Z
dc.date.issued2019-09-10
dc.identifier.citationEngle, Robert F, Ruan, Tianyue (2019-09-10). Measuring the probability of a financial crisis. PROCEEDINGS OF THE NATIONAL ACADEMY OF SCIENCES OF THE UNITED STATES OF AMERICA 116 (37) : 18341-18346. ScholarBank@NUS Repository. https://doi.org/10.1073/pnas.1903879116
dc.identifier.issn00278424
dc.identifier.issn10916490
dc.identifier.urihttps://scholarbank.nus.edu.sg/handle/10635/227539
dc.description.abstractWhen financial firms are undercapitalized, they are vulnerable to external shocks. The natural response to such vulnerability is to reduce leverage, and this can endogenously start a financial crisis. Excessive credit growth, the main cause of financial crises, is reflected in the undercapitalization of the financial sector. Market-based measures of systemic risk such as SRISK, which stands for systemic risk, enable monitoring how such weakness emerges and progresses in real time. In this paper, we develop quantitative estimates of the level of systemic risk in the financial sector that precipitates a financial crisis. Common approaches to reduce leverage correspond to specific scaling of systemic risk measures. In an econometric framework that recognizes financial crises represent left tail events for the economy, we estimate the relationship between SRISK and the financial crisis severity for 23 developed countries. We develop a probability of crisis measure and an SRISK capacity measure based on our estimates. Our analysis highlights the important global externality whereby the risk of a crisis in one country is strongly influenced by the undercapitalization of the rest of the world.
dc.language.isoen
dc.publisherNATL ACAD SCIENCES
dc.sourceElements
dc.subjectScience & Technology
dc.subjectMultidisciplinary Sciences
dc.subjectScience & Technology - Other Topics
dc.subjectfinancial stability
dc.subjectsystemic risk
dc.subjectprobability of crisis
dc.subjectCAPITAL SHORTFALL
dc.subjectLEVERAGE
dc.typeArticle
dc.date.updated2022-06-29T03:22:31Z
dc.contributor.departmentDEPT OF FINANCE
dc.description.doi10.1073/pnas.1903879116
dc.description.sourcetitlePROCEEDINGS OF THE NATIONAL ACADEMY OF SCIENCES OF THE UNITED STATES OF AMERICA
dc.description.volume116
dc.description.issue37
dc.description.page18341-18346
dc.published.statePublished
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