We formulate a simple theoretical model of a banking industry that we use to identify and construct theory-based measures of systemic bank shocks (SBS). These measures differ from “banking crisis” (BC) indicators employed in many empirical studies, which are constructed using primarily...

We show that repurchase agreements (repos) arise as the instrument of choice to borrow in a competitive model with limited commitment. The repo contract traded in equilibrium provides insurance against fluctuations in the asset price in states where collateral value is high and maximizes...

In this paper, we provide evidence for a risk-taking channel of monetary policy transmission in the euro area that works through an increase in shadow banks' total asset growth and their risk assets ratio. Our dataset covers the period 2003Q1 - 2017Q3 and includes, in addition to the standard...

We analyse the effects of macroprudential and monetary policies and their interactions using an estimated dynamic stochastic general equilibrium (DSGE) model tailored to New Zealand. We find that the main historical drivers of house prices are shocks specific to the housing sector. While our...

In view of regional house prices drifting apart, we examine whether regionally differentiated macroprudential policies can address financial stability concerns and moderate house price differences. To this end, we disaggregate both the household sector and the housing stock in a two-region DSGE...

Traditionally, aggregate liquidity shocks are modelled as exogenous events. Extending our previous work (Cao & Illing, 2008), this paper analyses the adequate policy response to endogenous systemic liquidity risk. We analyse the feedback between lender of last resort policy and incentives of...

We provide a first attempt to include off-balance sheet, implicit insurance to SIFIs into a consistent assessment of fiscal sustainability, for 27 countries of the European Union. We first calculate tax gaps à la Blanchard (1990) and Blanchard et al. (1990). We then introduce two alternative...

We examine systemic risk in the Chinese banking system by estimating the conditional value at risk (CoVaR), the marginal expected shortfall (MES), the systemic impact index (SII) and the vulnerability index (VI) for 16 listed banks in China. Although these measures show different patterns, our...

In this paper we review recent advances in financial economics in relation to the measurement of systemic risk. We start by reviewing studies that apply traditional measures of risk to financial institutions. However, the main focus of the review is on studies that use network analysis paying...

When Bayesian risk-averse investors are uncertain about their assets' cash flows' exposure to systematic risk, stock prices react more to news in downturns than in upturns, implying higher volatility in downturns and negatively skewed returns. The reason is that, in good times, less desirable...