| Managing macro-financial risk of an economy and financial system fragility: A multi-sectoral approach |
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Jun Tae Kim |
| 경제사회공동체 위험요인으로서의 금융시스템에 대한 교육적 개입 |
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김준태 |
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| Abstract |
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This study provides a new fundamental understanding of the effects of the systemic risk in financial system on the real economy, presenting an alternative paradigm of macro-financial distress risk to mitigate future deterioration of financial conditions. Both using a large dataset of macroeconomic-level observations and employing a simulation technique which illustrates the propagation of individual contagion determinants through the overall macroeconomic sector, I show that macro-financial contagion risk has a negative and significant impact on the variables determining the risk component of the financial system, decomposing the distribution of losses of the whole macroeconomic system into the systemic and the contagion elements. The financial instability is evaluated in a framework of how financial contagion propagates by capturing multiple snapshots of dynamic sources of systemic risk. This study provides evidence that a random shock that weakens one or more financial institutions and a transmission mechanism is an important source of the financial contagion risk. By modelling the financial contagion path in which domestic macroeconomic sector can be affected the results demonstrate that the significant destabilizing effect of macro-financial risk in systemic importance should include a network perspective in macro-financial analysis and macro-prudential policy. |
| Key Words:
Macro-financial risk, Financial system fragility, Macroeconomic sector, Systemic risk |
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