Markus K. Brunnermeier
Princeton University - Department of Economics
Gary B. Gorton
Yale School of Management; National Bureau of Economic Research (NBER)
Northwestern University - Kellogg School of Management
May 31, 2011
The aim of this paper is to conceptualize and design a risk topography that outlines a data acquisition and dissemination process that informs policymakers, researchers and market participants about systemic risk. Our approach emphasizes that systemic risk (i) cannot be detected based on measuring cash instruments, e.g., balance sheet items and income statement items; (ii) typically builds up in the background before materializing in a crisis; and (iii), is determined by market participants’ response to various shocks. We propose that regulators elicit from market participants their (partial equilibrium) risk as well as liquidity sensitivities with respect to major risk factors and liquidity scenarios. General equilibrium responses and economy-wide system effects can be calibrated using this panel data set.
Number of Pages in PDF File: 31
Keywords: Measurement, Systemic Risk, Liquidity
Date posted: April 30, 2011 ; Last revised: June 7, 2011
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