Challenges in Identifying and Measuring Systemic Risk
Sparked by the recent "great recession" and the role of financial markets, considerable interest exists among researchers within both the academic community and the public sector in modeling and measuring systemic risk. In this chapter, I draw on experiences with other measurement agendas to place in perspective the challenge of quantifying systemic risk, or more generally, of providing empirical constructs that can enhance our understanding of linkages between financial markets and the macroeconomy. In addition, I explore some conceptual modeling and measurement challenges, and examine these challenges as they relate to existing approaches to measuring systemic risk.
Lars Peter Hansen receives support from the Alfred P. Sloan Foundation and the CME Group Foundation in his capacity as research director of the Becker Friedman Institute. He is also a co-Primary Investigator on a National Science Foundation (NSF) grant that supports the Center for Robust Decision Making on Climate and Energy Policy (RDCEP).