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International aggregate risk: Effects on financial stability

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  • Lucchetta, Marcella

Abstract

The increasing interconnectedness of financial and economic systems has led to the emergence of global risks that can impact financial stability. In this paper, we explore how aggregate risk on a global scale can affect the stability of financial systems. We present a simple model that considers an exogenous parameter indicating the concentration of international credit risk in both domestic and foreign banking systems. When this parameter is high, the model is vulnerable to aggregate risk. Our research shows that if multiple countries are impacted by the same shock, diversification of risk becomes impossible.

Suggested Citation

  • Lucchetta, Marcella, 2024. "International aggregate risk: Effects on financial stability," Economics Letters, Elsevier, vol. 240(C).
    • Handle: RePEc:eee:ecolet:v:240:y:2024:i:c:s016517652400257x
    DOI: 10.1016/j.econlet.2024.111773
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    More about this item

    Keywords

    Aggregate risk; Financial stability; Real interest rates;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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