Systemic Risk and the Pursuit of Efficiency

25 Pages Posted: 31 Mar 2016

See all articles by Kartik Athreya

Kartik Athreya

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2015

Abstract

In this essay, senior economist Kartik Athreya identifies systemic risk with the presence of linkages between market participants, where problems for one directly create problems for others. He argues that such situations can arise from the use of contractual arrangements, especially debt that requires frequent refinancing and liquidation in the event of an inability to repay. The presence of spillover effects can, in turn, lead to outcomes in the wake of shocks that can be improved via policy intervention. Nonetheless, he cautions against taking this as a license to intervene after the fact, and instead suggests that observed contracting arrangements may be important in promoting efficient trade between parties from a before-the-shock perspective.

Suggested Citation

Athreya, Kartik, Systemic Risk and the Pursuit of Efficiency (2015). Economic Quarterly, Issue 1Q, pp. 23-47, 2015, Available at SSRN: https://ssrn.com/abstract=2756942 or http://dx.doi.org/10.21144/eq1010103

Kartik Athreya (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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