Determinants of US financial fragility conditions

Fabio Bagliano and Claudio Morana

No 11, Working papers from Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino

Abstract: The recent financial crisis has highlighted the fragility of the US (and other countries') financial system under several respects. In this paper, the properties of a summary index of financial fragility, obtained by combining information conveyed by the "Agency", "Ted" and "BAA-AAA" spreads, timely capturing changes in credit and liquidity risk, distress in the mortgage market, and corporate default risk, are investigated over the 1986-2010 period. The empirical results show that observed fluctuations in the financial fragility index can be attributed to identified (global and domestic) macroeconomic (20%) and financial disturbances (40% to 50%), over both short- and long-term horizons, as well as to oil-supply shocks in the long-term (25%). The investigation of specific episodes of financial distress, occurred in 1987, 1998 and 2000, and, more recently, over the 2007-2009 period, shows that sizable fluctuations in the index are largely determined by financial shocks, while macroeconomic disturbances have generally had a stabilizing effect.

Keywords: financial fragility; US; macro-finance interface; international business cycle; factor vector autoregressive models; financial crisis; Great Recession (search for similar items in EconPapers)
JEL-codes: C22 E32 G12 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012-09
New Economics Papers: this item is included in nep-ban and nep-rmg
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Citations: View citations in EconPapers (1)

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http://www.bemservizi.unito.it/repec/tur/wpapnw/m11.pdf First version, 2012 (application/pdf)

Related works:
Journal Article: Determinants of US financial fragility conditions (2014)
Working Paper: Determinants of US Financial fragility conditions (2013)
Working Paper: Determinants of US financial fragility conditions (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:tur:wpapnw:011

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