Systemic risk in the US: Interconnectedness as a circuit breaker

Mardi Dungey; Matteo Luciani; David Veredas

doi:10.1016/j.econmod.2017.10.004

Systemic risk in the US: Interconnectedness as a circuit breaker

Mardi Dungey^*, Matteo Luciani, David Veredas

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

18 Citations (Scopus)

Abstract

We measure systemic risk via the interconnections between the risks facing both financial and real economy firms. SIFIs are ranked by building on the Google PageRank algorithm for finding closest connections. For a panel of over 500 US firms over 2003–2011 we find evidence that intervention programs (such as TARP) act as circuit breakers in crisis propagation. The curve formed by the plot of firm average systemic risk against its variability clearly separates financial firms into three groups: (i) the consistently systemically risky (ii) those displaying the potential to become risky and (iii) those of little concern for macro-prudential regulators.

Original language	English
Pages (from-to)	305-315
Number of pages	11
Journal	Economic Modelling
Volume	71
DOIs	https://doi.org/10.1016/j.econmod.2017.10.004
Publication status	Published - Apr 2018

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KW - Historical decomposition

KW - Networks

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JO - Economic Modelling

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Systemic risk in the US: Interconnectedness as a circuit breaker

Abstract

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