The pandemic is not over, and the health and economic losses continue to grow. It is now evident that COVID-19 will be with us for the long term, and there are very different scenarios for how it could evolve, from a mild endemic scenario to a dangerous variant scenario. This realization calls...

Institutional transparency makes future contingencies more easily predictable for investors. Greater transparency can be achieved through vertical and horizontal integration of policy rules, which may result in lower Knightian uncertainty (ambiguity). In a model based on cumulative prospect...

This paper proposes a new framework for the analysis of public sector debt sustainability. The framework uses concepts and methods from modern practice of contingent claims to develop a quantitative risk-based model of sovereign credit risk. The motivation in developing this framework is to...

This paper analyzes the cross-border risks that could result from a decarbonization of the world economy. We develop a typology of cross-border risks and their respective channels. Our qualitative and quantitative scenario analysis suggests that the mid-transition - a period during which...

When constructing hedged interest rate arbitrage portfolios for basket currencies, two issues arise: first, how are the unknown future basket weights optimally forecasted from past exchange rate data? And, second, how is risk—in terms of the conditional variance of expected profits from the...

In theory, one of the main benefits of financial globalization is that it should allow for more efficient international risk sharing. This paper provides a comprehensive empirical evaluation of the patterns of risk sharing among different groups of countries and examines how international...

In this paper, we identify the groups of countries where international risk-sharing opportunities are most attractive. We show that the bulk of risk-sharing gains can be achieved in groups consisting of as few as seven members, and that further marginal benefits quickly become negligible. For...

The paper discusses the limits to market-based risk transfer in the financial system and the implications for the management of systemic long-term financial risks. Financial instruments or markets to transfer and better manage these risks across institutions and sectors are, as yet, either...

Systemic risk remains a major concern to policymakers since widespread defaults in the corporate and financial sectors could pose substantial costs to society. Forward-looking measures and/or indicators of systemic default risk are thus needed to identify potential buildups of vulnerability in...

A Technical Assistance (TA) mission was conducted in Dhaka, Bangladesh, from March 5 to 9, 2023, to assist authorities in setting up a framework to assess physical climate risk in the financial system. The TA mission focused on (i) proposing a risk assessment framework tailored to available...