Dale F. Gray

Sr. Risk Expert, Monetary and Capital Markets Dept
International Monetary Fund
700 19th St N.W.
Washington DC 20431

E-Mail: EmailAddress: hidden: you can email any NBER-related person as first underscore last at nber dot org

NBER Working Papers and Publications

November 2007New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability
with Robert C. Merton, Zvi Bodie: w13607
This paper proposes a new approach to improve the way central banks can analyze and manage the financial risks of a national economy. It is based on the modern theory and practice of contingent claims analysis (CCA), which is successfully used today at the level of individual banks by managers, investors, and regulators. The basic analytical tool is the risk-adjusted balance sheet, which shows the sensitivity of the enterprise's assets and liabilities to external "shocks." At the national level, the sectors of an economy are viewed as interconnected portfolios of assets, liabilities, and guarantees -- some explicit and others implicit. Traditional approaches have difficulty analyzing how risks can accumulate gradually and then suddenly erupt in a full-blown crisis. The CCA approach is...

Published: Rodrigo Alfaro (ed.) Financial Stability, Monetary Policy, and Central Banking, , chapter 05, pages 125-157, 2011.

October 2006A New Framework for Analyzing and Managing Macrofinancial Risks of an Economy
with Robert C. Merton, Zvi Bodie: w12637
The high cost of international economic and financial crises highlights the need for a comprehensive framework to assess the robustness of national economic and financial systems. This paper proposes a new comprehensive approach to measure, analyze, and manage macroeconomic risk based on the theory and practice of modern contingent claims analysis (CCA). We illustrate how to use the CCA approach to model and measure sectoral and national risk exposures, and analyze policies to offset their potentially harmful effects. This new framework provides economic balance sheets for inter-linked sectors and a risk accounting framework for an economy. CCA provides a natural framework for analysis of mismatches between an entity's assets and liabilities, such as currency and maturity mismatches on...
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