Equilibrium analysis, banking and financial instability

Tsomocos, Dimitrios P.

doi:10.1016/s0304-4068(03)00045-4

Cited by 141 publications

(90 citation statements)

References 43 publications

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“…Since the Modigliani-Miller proposition does not hold in our model 12 , higher credit extension as a result of loosening monetary policy, or any other shocks, generates positive effects, e.g. a real balance effect, that raises consumption demand and ultimately GDP.…”

Section: Gdpmentioning

confidence: 86%

“…Hence, defaults rise. 12 See Goodhart et al (2003) for an extensive discussion. 13 The interest rate formation mechanism is identical to the offer-for-sale mechanism in Dubey and Shubik (1978).…”

Section: Interbank Market Clears)(16)mentioning

confidence: 99%

“…g h b ,s,3 , ∀h b ∈ H b , s ∈ S, in equation (12). As can be seen from table I, the values of g h b ,i,3 is chosen to be greater than the corresponding values of g h b ,ii,3 , ∀h b ∈ H b , implying that the effect of a 'credit crunch' is assumed to be stronger in the bad state.…”

Section: Calibrationmentioning

confidence: 99%

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A Time Series Analysis of Financial Fragility in the UK Banking System

2005

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This paper extends the model proposed by Tsomocos (2003, 2004a, b) to an infinite horizon setting. Thus, we are able to assess how the model conforms with the time series data of the U.K. banking system. We conclude that, since the model performs satisfactorily, it can be readily used to assess financial fragility given its flexibility, computability, and the presence of multiple contagion channels and heterogeneous banks and investors.

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Section: Gdpmentioning

confidence: 86%

Section: Interbank Market Clears)(16)mentioning

confidence: 99%

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A Time Series Analysis of Financial Fragility in the UK Banking System

2005

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“…Their effective (ex post) interest rates have to be suitably adjusted to account for default in their corresponding markets. 12 …”

Section: Interbank Market Clears) (15)mentioning

confidence: 99%

“…Note that this interest rate formation mechanism is well-defined both in, and out of, equilibrium. 12 For more on the method of calculating the ex post interest rates, see Shubik and Tsomocos (1992).…”

Section: Equilibriummentioning

confidence: 99%

A risk assessment model for banks

2005

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The objective of this paper is to propose a model to assess risk for banks. Its main innovation is to incorporate endogenous interaction between banks, recognising that the actual risk to which an individual bank is exposed also depends on its interaction with other banks and other private sector agents. To this end, we develop a two-period general equilibrium model with three active heterogeneous banks, incomplete markets, and endogenous default. The setting of three heterogeneous banks allows us to study not only interaction between any two individual banks, but also their interaction with the rest of the banks in the banking system. We show that the model is analytically tractable and can be calibrated against real UK banking data and therefore can be implemented as a risk assessment tool for financial regulators and central banks. We address the impact of monetary and regulatory policy as well as credit and capital shocks in the real and financial sectors.

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Macrofinancial Risk Framework Linked to Macroeconomic Models

Gray¹,

Malone²

2008

Macrofinancial Risk Analysis

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Equilibrium analysis, banking and financial instability

Cited by 141 publications

References 43 publications

A Time Series Analysis of Financial Fragility in the UK Banking System

A Time Series Analysis of Financial Fragility in the UK Banking System

A risk assessment model for banks

Macrofinancial Risk Framework Linked to Macroeconomic Models

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