Risk Topography
31 Pages
Posted: 30 Apr 2011
Last revised: 7 Jun 2011
Date Written: May 31, 2011
Abstract
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.
Keywords: Measurement, Systemic Risk, Liquidity
Suggested Citation:
Suggested Citation
Brunnermeier, Markus K. and Gorton, Gary B. and Krishnamurthy, Arvind, Risk Topography (May 31, 2011). Available at SSRN: https://ssrn.com/abstract=1825124 or http://dx.doi.org/10.2139/ssrn.1825124
