Affiliation:
1. Federal Reserve Bank of New York, Research and Statistics Group, 33 Liberty Street, New York, NY 10045 (e-mail: )
2. Bendheim Center for Finance, Department of Economics, Princeton University, Princeton, NJ 08544, NBER, CEPR, and CESIfo (e-mail: )
Abstract
We propose a measure of systemic risk, Δ CoVaR, defined as the change in the value at risk of the financial system conditional on an institution being under distress relative to its median state. Our estimates show that characteristics such as leverage, size, maturity mismatch, and asset price booms significantly predict Δ CoVaR. We also provide out-of-sample forecasts of a countercyclical, forward-looking measure of systemic risk, and show that the 2006:IV value of this measure would have predicted more than one-third of realized Δ CoVaR during the 2007–2009 financial crisis. (JEL C58, E32, G01, G12, G17, G20, G32)
Publisher
American Economic Association
Subject
Economics and Econometrics
Cited by
1640 articles.
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