English, Article, Journal or magazine article edition: What Happens When You Regulate Risk? Evidence from a Simple Equilibrium Model Jean-Pierre Zigrand; Jon Danielsson

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Bookmark: http://trove.nla.gov.au/version/45156
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • What Happens When You Regulate Risk? Evidence from a Simple Equilibrium Model
Author
  • Jean-Pierre Zigrand
  • Jon Danielsson
Physical Description
  • preprint
Notes
  • The implications of Value-at-Risk regulations are analyzed in a CARA-normal general equilibrium model. Financial institutions are heterogeneous in risk preferences, wealth and the degree of supervision. Regulatory risk constraints lower the probability of one form of a systemic crisis, at the expense of more volatile asset prices, less liquidity, and the amplification of downward price movements. This can be viewed as a consequence of the endogenously changing risk appetite of financial institutions induced by the regulatory constraints. Finally, the Value-at-Risk constraints may prevent market clearing altogether. The role of unregulated institutions (hedge-funds) is considered. The findings are illustrated with an application to the 1987 and 1998 crises.
  • RePEc:fmg:fmgdps:dp393
Language
  • English
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