NBER Working Papers by Tobias Adrian

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Working Papers

April 2013Procyclical Leverage and Value-at-Risk
with Hyun Song Shin: w18943
The availability of credit varies over the business cycle through shifts in the leverage of financial intermediaries. Empirically, we find that intermediary leverage is negatively aligned with the banks' Value-at-Risk (VaR). Motivated by the evidence, we explore a contracting model that captures the observed features. Under general conditions on the outcome distribution given by Extreme Value Theory (EVT), intermediaries maintain a constant probability of default to shifts in the outcome distribution, implying substantial deleveraging during downturns. For some parameter values, we can solve the model explicitly, thereby endogenizing the VaR threshold probability from the contracting problem.
November 2012Repo and Securities Lending
with Brian Begalle, Adam Copeland, Antoine Martin: w18549
We provide an overview of the data required to monitor repo and securities lending markets for the purposes of informing policymakers and researchers about firm-level and systemic risk. We start by explaining the functioning of these markets and argue that it is crucial to understand the institutional arrangements. Data collection is currently incomplete. A comprehensive collection would include, at a minimum, six characteristics of repo and securities lending trades at the firm level: principal amount, interest rate, collateral type, haircut, tenor, and counterparty.

Published: Repo and Securities Lending, Tobias Adrian, Brian Begalle, Adam Copeland, Antoine Martin. in Risk Topography: Systemic Risk and Macro Modeling, Brunnermeier and Krishnamurthy. 2014

August 2012Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007-9
with Paolo Colla, Hyun Song Shin: w18335
The financial crisis of 2007-9 has sparked keen interest in models of financial frictions and their impact on macro activity. Most models share the feature that borrowers suffer a contraction in the quantity of credit. However, the evidence suggests that although bank lending to firms declines during the crisis, bond financing actually increases to make up much of the gap. This paper reviews both aggregate and micro level data and highlights the shift in the composition of credit between loans and bonds. Motivated by the evidence, we formulate a model of direct and intermediated credit that captures the key stylized facts. In our model, the impact on real activity comes from the spike in risk premiums, rather than contraction in the total quantity of credit.

Published: Which Financial Frictions? Parsing the Evidence from the Financial Crisis of 2007 to 2009, Tobias Adrian, Paolo Colla, Hyun Song Shin. in NBER Macroeconomics Annual 2012, Volume 27, Acemoglu, Parker, and Woodford. 2013

October 2011CoVaR
with Markus K. Brunnermeier: w17454
We propose a measure for systemic risk: CoVaR, the value at risk (VaR) of the financial system conditional on institutions being under distress. We define an institution's contribution to systemic risk as the difference between CoVaR conditional on the institution being under distress and the CoVaR in the median state of the institution. From our estimates of CoVaR for the universe of publicly traded financial institutions, we quantify the extent to which characteristics such as leverage, size, and maturity mismatch predict systemic risk contribution. We also provide out of sample forecasts of a countercyclical, forward looking measure of systemic risk and show that the 2006Q4 value of this measure would have predicted more than half of realized covariances during the financial crisis.

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