Endogenous Risk
A data-driven risk management process can not capture endogenous risk, only exogenous risk.
Read moreEndogenous risk
15 posts in this category
Perceived and actual risk
Perceived risk is risk predicted by models, and actual risk is the fundamental underlying risk. We measure perceived risk and care about the actual ri…
Read moreThe illusion of control
Global macroprudential and microprudential regulatory changes since 2008 have been designed to make a repeat of a systemic crisis much less likely. Th…
Read moreHow global risk perceptions affect economic growth
The relationship between financial risk and economic growth is complex. This column finds that perceptions of high risk unambiguously harm growth, whi…
Read moreArtificial intelligence as a central banker
Artificial intelligence, such as the Bank of England Bot, is set to take over an increasing number of central bank functions. This column argues that …
Read moreThe dissonance of the short and long term
The type of risk we most care about is long-term, what happens over years or decades, but we tend to manage that risk over short periods. This column …
Read moreLow risk as a predictor of financial crises
Reliable indicators of future financial crises are important for policymakers and practitioners. While most indicators consider an observation of high…
Read moreArtificial intelligence and the stability of markets
Artificial intelligence is increasingly used to tackle all sorts of problems facing people and societies. This column considers the potential benefits…
Read moreFinance is not engineering
Regulations change behaviour and outcomes. It is seductively attractive to say that someone misbehaves, therefore we need the rule to prevent the mis…
Read moreWhy macropru can end up being procyclical
Discretionary macroprudential policies aim to be countercyclical by adjusting risk-taking across the financial cycle. This column argues that the oppo…
Read moreWhy risk is hard to measure
Regulators and financial institutions increasingly depend on statistical risk forecasting. This column argues that most risk modelling approaches are …
Read moreTowards a more procyclical financial system
Is the fact that different banks have different risk models problematic? Contrary to the Basel Committee and the European Banking Authority, this colu…
Read moreModelling financial turmoil through endogenous risk
By incorporating endogenous risk into a standard asset-pricing model, this column shows how banks' capacity to bear risk seemingly evaporates in the f…
Read moreFinancial regulation built on sand: The myth of the riskometer
Much of today's financial regulation assumes that risk can be accurately measured so that financial engineers, like civil engineers, can design safe p…
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