Determinants of US Financial Fragility Conditions

Research in International Business and Finance 30 (2014) 377–392

Posted: 12 Feb 2012 Last revised: 29 May 2014

See all articles by Claudio Morana

Claudio Morana

Università di Milano Bicocca; Università degli Studi di Milano-Bicocca - Department of Economics, Management and Statistics (DEMS); Università degli Studi di Milano-Bicocca - Center for European Studies (CefES); Center for Economic Research on Pensions and Welfare Policies (CeRP); Rimini Center for Economic Analysis - Europe ETS; Rimini Center for Economic Analysis - HQ

Fabio C. Bagliano

University of Turin - Department of Economics and Statistics; Center for Research on Pensions and Welfare Policies (CeRP); University of Turin - Collegio Carlo Alberto

Date Written: August 28, 2012

Abstract

The recent financial crisis has highlighted the fragility of the US (and other countries') financial system under several respects. In this paper, the properties of a summary index of financial fragility, obtained by combining information conveyed by the "Agency," "Ted" and "BAA-AAA" spreads, timely capturing changes in credit and liquidity risk, distress in the mortgage market, and corporate default risk, are investigated over the 1986-2010 period. The empirical results show that observed fluctuations in the financial fragility index can be attributed to identified (global and domestic) macroeconomic (20%) and financial disturbances (40% to 50%), over both short- and long-term horizons, as well as to oil-supply shocks in the long-term (25%). The investigation of specific episodes of financial distress, occurred in 1987, 1998 and 2000, and, more recently, over the 2007-2009 period, shows that sizable fluctuations in the index are largely determined by financial shocks, while macroeconomic disturbances have generally had a stabilizing effect.

Keywords: financial fragility, US, macro-finance interface, international business cycle, factor vector autoregressive models, financial crisis, Great Recession

JEL Classification: C22, E32, G12

Suggested Citation

Morana, Claudio and Bagliano, Fabio C., Determinants of US Financial Fragility Conditions (August 28, 2012). Research in International Business and Finance 30 (2014) 377–392, Available at SSRN: https://ssrn.com/abstract=2003342 or http://dx.doi.org/10.2139/ssrn.2003342

Claudio Morana (Contact Author)

Università di Milano Bicocca ( email )

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Center for Economic Research on Pensions and Welfare Policies (CeRP) ( email )

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Fabio C. Bagliano

University of Turin - Department of Economics and Statistics ( email )

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University of Turin - Collegio Carlo Alberto ( email )

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