Global Market Conditions and Systemic Risk
IMF Working Papers, October 1, 2009
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Bibliographic details
- Authors: Brenda Gonzalez-Hermosillo, Heiko Hesse
- Published: October 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451873771.001
Key findings and conclusions
- The paper examines several key global market conditions, such as a proxy for market uncertainty and measures of interbank funding stress, to assess financial volatility and the likelihood of crisis.
- Using Markov regime-switching techniques, the authors show that the Lehman Brothers failure was a watershed event in the crisis.
- Signs of heightened systemic risk could be detected as early as February 2007.
- The analysis considers the role of global market conditions to help determine when governments should begin to exit their extraordinary public support measures.
Methodology
- Empirical approach: Markov regime-switching techniques.
- Variables examined include a proxy for market uncertainty and measures of interbank funding stress (specific variable names and constructions are described in the paper).
Policy implications and recommendations
- Global market conditions can inform timing for government exit from extraordinary public support measures.
- Monitoring proxies for market uncertainty and interbank funding stress can provide early signals of heightened systemic risk (e.g., as early as February 2007).