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Sudden Financial Arrest

48 Pages Posted: 15 Nov 2009  

Ricardo J. Caballero

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 8, 2009

Abstract

There are striking and terrifying similarities between the sudden failure of a heart and that of a financial system. In the medical literature, the former is referred to as a sudden cardiac arrest (SCA). By analogy, I refer to its financial counterpart as a sudden financial arrest (SFA). In this article I describe SFA and its treatment guided by its medical counterpart.

Keywords: Financial crisis, panic, defibrillation, complexity, Knightian uncertainty, moral hazard, financial network, capital requirements, contingent capital, contingent insurance, IMF

JEL Classification: E32, E44, E58, F30, G01, G20

Suggested Citation

Caballero, Ricardo J., Sudden Financial Arrest (November 8, 2009). MIT Department of Economics Working Paper No. 09-29. Available at SSRN: https://ssrn.com/abstract=1504985 or http://dx.doi.org/10.2139/ssrn.1504985

Ricardo J. Caballero (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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