Sharing Asymmetric Tail Risk: Smoothing, Asset Prices and Terms of Trade

Giancarlo Corsetti;  ; Anna Lipinska; Giovanni Lombardo;  ;

doi:10.17016/ifdp.2021.1324

Sharing Asymmetric Tail Risk: Smoothing, Asset Prices and Terms of Trade

International Finance Discussion Paper ◽

10.17016/ifdp.2021.1324 ◽

2021 ◽

Vol 2021 (1323) ◽

pp. 1-57

Author(s):

Giancarlo Corsetti ◽

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Anna Lipinska ◽

Giovanni Lombardo ◽

◽

...

Keyword(s):

Empirical Distribution ◽

Terms Of Trade ◽

Dsge Models ◽

Order Of Approximation ◽

Complete Markets ◽

Tail Risk ◽

Asymmetric Effects ◽

Macroeconomic Risk ◽

Tail Events ◽

Average Consumption

Crises and tail events have asymmetric effects across borders, raising the value of arrangements improving insurance of macroeconomic risk. Using a two-country DSGE model, we provide an analytical and quantitative analysis of the channels through which countries gain from sharing (tail) risk. Riskier countries gain in smoother consumption but lose in relative wealth and average consumption. Safer countries benefit from higher wealth and better average terms of trade. Calibrated using the empirical distribution of moments of GDP-growth across countries, the model suggests non-negligible quantitative effects. We offer an algorithm for the correct solution of the equilibrium using DSGE models under complete markets, at higher order of approximation.

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The Macroeconomic Effect of Disaster Shocks in MRS-DSGE Models

Journal of Advanced Computational Intelligence and Intelligent Informatics ◽

10.20965/jaciii.2018.p1009 ◽

2018 ◽

Vol 22 (7) ◽

pp. 1009-1015

Author(s):

Shangfeng Zhang ◽

Siwa Xu ◽

Xiaohui Luo ◽

Yue Sun ◽

Yinan Yang ◽

...

Keyword(s):

Risk Premium ◽

Dsge Models ◽

Macroeconomic Performance ◽

Net Worth ◽

Enterprise Value ◽

Macroeconomic Risk ◽

Investment Capital ◽

Macroeconomic Effect ◽

The Government ◽

The Impact

In this paper, a Markov transfer matrix is used to characterize exogenous sudden shocks, and a closed economic DSGE model including a financial accelerator is constructed to simulate the impact of sudden shocks on China’s macroeconomic performance. The study found that: (1) Sudden impacts reduce output, investment, consumption, capital, technology, and enterprise value, but improve labor, inflation, and risk premium, thus weakening macroeconomic risk resilience. (2) The impact of sudden shocks on macroeconomic variables, from large to small, is net worth, technical level, labor, inflation, investment, capital, output, and external premium. (3) It is appropriate for the government to adopt the principle of combining broad finance measures and tight currency controls in order to improve the risk resistance ability of macroeconomic operations.

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Testing risk proxies for financial collateral haircuts: adequacy of capturing tail risk

The Journal of Risk Finance ◽

10.1108/jrf-07-2019-0135 ◽

2020 ◽

Vol 21 (3) ◽

pp. 299-316

Author(s):

Lukasz Prorokowski ◽

Oleg Deev ◽

Hubert Prorokowski

Keyword(s):

Asset Price ◽

Price Volatility ◽

Statistical Tools ◽

Tail Risk ◽

Content Type ◽

Kolmogorov Smirnov ◽

Tail Events ◽

Individual Asset ◽

Equity Index ◽

Smirnov Test

Purpose The use of risk proxies in internal models remains a popular modelling solution. However, there is some risk that a proxy may not constitute an adequate representation of the underlying asset in terms of capturing tail risk. Therefore, using empirical examples for the financial collateral haircut model, this paper aims to critically review available statistical tools for measuring the adequacy of capturing tail risk by proxies used in the internal risk models of banks. In doing so, this paper advises on the most appropriate solutions for validating risk proxies. Design/methodology/approach This paper reviews statistical tools used to validate if the equity index/fund benchmark are proxies that adequately represent tail risk in the returns on an individual asset (equity/fund). The following statistical tools for comparing return distributions of the proxies and the portfolio items are discussed: the two-sample Kolmogorov–Smirnov test, the spillover test and the Harrell’s C test. Findings Upon the empirical review of the available statistical tools, this paper suggests using the two-sample Kolmogorov–Smirnov test to validate the adequacy of capturing tail risk by the assigned proxy and the Harrell’s C test to capture the discriminatory power of the proxy-based collateral haircuts models. This paper also suggests a tool that compares the reactions of risk proxies to tail events to verify possible underestimation of risk in times of significant stress. Originality/value The current regulations require banks to prove that the modelled proxies are representative of the real price observations without underestimation of tail risk and asset price volatility. This paper shows how to validate proxy-based financial collateral haircuts models.

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Globalization, de-industrialization and underdevelopment in the third world before the modern era

Revista de Historia Económica / Journal of Iberian and Latin American Economic History ◽

10.1017/s0212610900000458 ◽

2006 ◽

Vol 24 (1) ◽

pp. 9-36 ◽

Cited By ~ 13

Author(s):

Jeffrey G. Williamson

Keyword(s):

Third World ◽

Terms Of Trade ◽

Asymmetric Effects ◽

Primary Products ◽

High Volatility ◽

Per Capita ◽

Trade Volatility ◽

The Third World ◽

Modern Era ◽

Carlos Iii

AbstractBetween 1810 and 1940, a large GDP per capita gap appeared between the industrial core and the poor periphery, the latter producing, increasingly, primary products. Over the same period, the terms of trade facing the periphery underwent a secular boom then bust, peaking in the 1870s or 1890s. These terms of trade trends appear to have been exogenous to the periphery. Additionally, the terms of trade facing the periphery exhibited relatively high volatility. Are these correlations spurious, or are they causal? This Figuerola Lecture, to be given at Carlos III University (Madrid), argues that they are causal, that secular growth and volatility in the terms of trade had asymmetric effects on core and periphery. On the upswing, the secular rise in its terms of trade had powerful de-industrialization effects in the periphery. Over the full cycle 1810–1940, terms of trade volatility suppressed accumulation and growth in the periphery as well.

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Asymmetric Effects of Terms of Trade Shocks on Tradable and Non-tradable Investment Rates: The Colombian Case

10.32468/be.1043 ◽

2018 ◽

Cited By ~ 2

Author(s):

Camilo Alberto Cárdenas-Hurtado ◽

Aarón Levi Garavito-Acosta ◽

Jorge Hernán Toro-Córdoba

Keyword(s):

Terms Of Trade ◽

Trade Shocks ◽

Asymmetric Effects ◽

Investment Rates

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"Fat" Years: The Analysis of Trading Gains of the Russian Economy

Voprosy Ekonomiki ◽

10.32609/0042-8736-2010-2-53-64 ◽

2010 ◽

pp. 53-64

Author(s):

B. Zamaraev

Keyword(s):

Terms Of Trade ◽

Russian Economy

The article is devoted to the analysis of different approaches to estimating trading gains (or losses) from changes in the terms of trade for the Russian economy. It presents the calculation of trading gains (or losses) received by the Russian economy in 1999-2009.

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