During banking crises, regulators must decide between bailouts or liquidations,neither of which are publicly popular. A comprehensive assessment of regulators,however, requires examining all their decisions against regulators’ objectives of preserving financial stability while discouraging...

The recent financial crisis has focused attention on identifying and measuring systemic risk. In this paper, we propose a novel approach to estimate the portfolio composition of banks as function of daily interbank trades and stock returns. While banks’ assets are reported to regulators...

When capital in the banking system becomes depleted, the degree to which financial intermediation and the macroeconomy are adversely affected is likely to depend on the financial and macroeconomic environment. However, existing studies either assume that the effects of bank capital shocks are...

We integrate systemic financial instability in an empirical macroeconomic model for the euro area. We find that at times of widespread financial instability the macroeconomy functions fundamentally differently from tranquil times. We employ a richly specified Markov-Switching...

In the dynamic stochastic general equilibrium (DSGE) literature there has been an increasing aware- ness on the role that the banking sector can play in macroeconomic activity. We present a DSGE model with financial intermediation as in Gertler and Karadi (2011). The estimation of shocks and of...

This paper proposes a framework for modelling financial contagion that is based on SIR (Susceptible-Infected-Recovered) transmission models from epidemic theory. This class of models addresses two important features of contagion modelling, which are a common shortcoming of most existing...

In this paper we assess the merits of financial condition indices constructed using simple averages versus a more sophisticated alternative that uses factor models with time varying parameters. Our analysis is based on data for 18 advanced and emerging economies at a monthly frequency covering...

This study attempts to develop a financial vulnerability indicator serving as a composite indicator for the state of financial vulnerability. The indicator was constructed from 10 variables of macroeconomic, financial and property market by extracting a common vulnerability component through the...

In this paper we assess the merits of financial condition indices constructed using simple averages versus a more sophisticated alternative that uses factor models with time varying parameters. Our analysis is based on data for 18 advanced and emerging economies at a monthly frequency covering...

We use a compound option-based structural credit risk model to infer a term structure of banking crisis risk from market data on bank stocks in daily frequency. Considering debt service payments with different maturities this term structure assigns a separate estimator for short- and long-term...