Towards a Measure of Financial Fragility

Aspachs, Oriol, Goodhart, Charles, Tsomocos, Dimitrios and Zicchino, Lea (2007) Towards a Measure of Financial Fragility. Annals of Finance, 3 (1). pp. 37-74.


The paper proposes a measure of financial fragility that is based on economic welfare in a general equilibrium model calibrated against UK data. The model comprises a household sector, three active heterogeneous banks, a central bank/regulator, incomplete markets, and endogenous default. We address the impact of monetary and regulatory policy, credit and capital shocks in the real and financial sectors and how the response of the economy to shocks relates to our measure of financial fragility. Finally we use panel VAR techniques to investigate the relationships between the factors that characterise financial fragility in our model, i.e. banks’ probabilities of default and banks’ profits – to a proxy of welfare.

Item Type: Article
Keywords: Financial fragility; Banks; Regulatory policy; Monetary policy; Equilibrium analysis; finance
Subject(s): Finance
Date Deposited: 25 Jan 2012 19:18
Last Modified: 22 Feb 2017 15:30
Funders: N/A

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