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Systemic Risks and the Macroeconomy

Author/Editor: Lucchetta, Marcella | De Nicoló, Gianni
Authorized for Distribution: February 1, 2010
Electronic Access: Free Full Text (PDF file size is 1,332KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper presents a modeling framework that delivers joint forecasts of indicators of systemic real risk and systemic financial risk, as well as stress-tests of these indicators as impulse responses to structural shocks identified by standard macroeconomic and banking theory. This framework is implemented using large sets of quarterly time series of indicators of financial and real activity for the G-7 economies for the 1980Q1-2009Q3 period. We obtain two main results. First, there is evidence of out-of sample forecasting power for tail risk realizations of real activity for several countries, suggesting the usefulness of the model as a risk monitoring tool. Second, in all countries aggregate demand shocks are the main drivers of the real cycle, and bank credit demand shocks are the main drivers of the bank lending cycle. These results challenge the common wisdom that constraints in the aggregate supply of credit have been a key driver of the sharp downturn in real activity experienced by the G-7 economies in 2008Q4- 2009Q1.
 
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Series: Working Paper No. 10/29
Subject(s): Banking sector | Economic forecasting | Economic indicators | Economic models | External shocks | Financial risk | Group of seven | Prices
Author's keyword(s): Systemic Risk | Dynamic Factor Model | Quantile Regressions
 
English  
    Published:   February 1, 2010        
    ISBN/ISSN:   9781451962567   Format:   Paper
    Stock No:   WPIEA2010029   Pages:   18
    Price:   US$18.00
       
     
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