Global Market Conditions and Systemic Risk

23 Pages Posted: 26 Oct 2009

See all articles by Heiko Hesse

Heiko Hesse

International Monetary Fund (IMF)

Brenda González-Hermosillo

International Monetary Fund; Massachusetts Institute of Technology

Date Written: October 2009

Abstract

This paper examines several key global market conditions, such as a proxy for market uncertainty and measures of interbank funding stress, to assess financial volatility and the likelihood of crisis. Using Markov regime-switching techniques, it shows that the Lehman Brothers failure was a watershed event in the crisis, although signs of heightened systemic risk could be detected as early as February 2007. In addition, we analyze the role of global market conditions to help determine when governments should begin to exit their extraordinary public support measures.

Keywords: Banking sector, Central bank policy, Currency swaps, Developing countries, Economic models, Financial crisis, Financial risk, Financial systems, Fiscal policy, International capital markets, Nonbank financial sector, Risk management

Suggested Citation

Hesse, Heiko and González-Hermosillo, Brenda, Global Market Conditions and Systemic Risk (October 2009). IMF Working Paper No. 09/230, Available at SSRN: https://ssrn.com/abstract=1493547

Heiko Hesse (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Brenda González-Hermosillo

International Monetary Fund ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4210 (Phone)
202-589-4210 (Fax)

Massachusetts Institute of Technology ( email )

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E62-416
Cambridge, MA 02142
United States

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