The Real Effects of Financial Sector Risk
IMF Working Papers, September 1, 2009
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Bibliographic details
- Authors: Andrea M. Maechler, Alexander F. Tieman
- Published: September 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451873450.001
Summary and main findings
- The paper estimates the magnitude of key effects on the real economy from financial sector stress.
- Focus is on the short-run feedback effect from market-based indicators of financial sector risk to the real economy through the credit channel.
- Estimates are produced at two levels:
- Economy-wide (macro) level.
- Individual large banks.
- Both sets of estimates yield significant feedback effects of substantial magnitude.
- The estimates are consistent with other work in this area.
Policy implications and recommendations
- Prudential supervision could be enhanced by taking into account the feedback effects of financial instability on the real economy.
- Proposes a way to integrate feedback effects into stress tests to:
- Improve realism of macroeconomic stress scenarios.
- Improve accuracy of macroeconomic stress scenarios.
- Proposes a metric to interpret stress testing results.
Subject areas and keywords
- Subject: Bank credit, Banking, Credit, Financial sector, Financial sector risk
- Keywords: bank, credit growth, GDP, WP