Financial Stability, Systemic Risk and Stress Testing
The 2008 crisis dramatically demonstrated the dangers of using too much leverage (buying assets with borrowed money), and in particular how this can create systemic risk. We have been working together with the Bank of England, the ECB and the Bank of South Africa to develop models that can be used to better understand systemic risk and to quantify its dangers. This includes a better understanding of the interaction between the channels of contagion through which risk is propagated and amplified. Our goal is to create tools that can be used to make quantitative forecasts of risk and that can be used to investigate alternative policies for reducing systemic risk.
People: Doyne Farmer, Alissa Kleinnijenhuis, Thom Wetzer