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How Much SRISK Is Too Much
| Content Provider | Semantic Scholar |
|---|---|
| Author | Engle, Robert F. Ruan, Tianyue |
| Copyright Year | 2018 |
| Abstract | When financial firms are under-capitalized, they are vulnerable to external shocks. This is commonly measured by stress tests or market-based measures of systemic risk such as SRISK. The natural response to such vulnerability is to raise capital and this can endogenously start a financial crisis. Excessive credit growth can be interpreted as under-capitalization of the financial sector. Hence, we can assess how much SRISK an economy can stand, and measure the probability of a crisis. Using a crisis intensity variable constructed by Romer and Romer (2017), we estimate a Tobit model for 23 developed economies. We develop a probability of crisis measure and an SRISK capacity measure from the Tobit estimates. These reveal the important global externalities since the risk of a crisis in one country is strongly influenced by the under-capitalization of the rest of the world. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://www.stern.nyu.edu/sites/default/files/assets/documents/How%20Much%20SRISK.SoFiE-1.pdf |
| Alternate Webpage(s) | http://www.stern.nyu.edu/sites/default/files/assets/documents/REngle_SRISK.pdf |
| Alternate Webpage(s) | https://doi.org/10.2139/ssrn.3108269 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
