Measuring Macroprudential Risk: Financial Fragility Indexes

Levy Economics Institute Working Papers Series No. 654

28 Pages Posted: 18 Mar 2011

Date Written: March 14, 2011


With the Great Recession and the regulatory reform that followed, the search for reliable means to capture systemic risk and to detect macrofinancial problems has become a central concern. In the United States, this concern has been institutionalized through the Financial Stability Oversight Council, which has been put in charge of detecting threats to the financial stability of the nation. Based on Hyman Minsky’s financial instability hypothesis, the paper develops macroeconomic indexes for three major economic sectors. The index provides a means to detect the speed with which financial fragility accrues, and its duration; and serves as a complement to the microprudential policies of regulators and supervisors. The paper notably shows, notably, that periods of economic stability during which default rates are low, profitability is high, and net worth is accumulating are fertile grounds for the growth of financial fragility.

Keywords: Financial Fragility, Financial Regulation, Financial Crises, Macroprudential Risk, Debt-Deflation Process, Ponzi Finance

JEL Classification: E32, G01, G18, G28, G38

Suggested Citation

Tymoigne, Eric, Measuring Macroprudential Risk: Financial Fragility Indexes (March 14, 2011). Levy Economics Institute Working Papers Series No. 654, Available at SSRN: or

Eric Tymoigne (Contact Author)

Lewis & Clark College ( email )

0615 SW Palatine Hill Road
Portland, OR 97204
United States

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