Macrofinancial Risk Analysis

Macrofinancial Risk Analysis provides a new and powerful framework with which policymakers and investors can analyze risk and vulnerability in economies, both emerging market and industrial. Using modern risk management and financial engineering techniques applied to the macroeconomy, an economic value can be placed on the risks posed by inter-linkages between sectors, the risk of default of different sectors on their outstanding debt obligations quantified, and the value ex-ante of guarantees to private sector entities by the government calculated. This book guides the reader through the basic macroeconomic and financial models necessary to understand the framework, the core analytical tools, and more advanced contributions that will be of interest to researchers. This unique synthesis of ideas from finance and macroeconomics offers several original contributions to the theory of financial crises, as well as a range of new policy options for governments interested in achieving a better tradeoff between economic growth and macro risk.

Table of Contents

1 Introduction

Part I Overview Of Finance, Macroeconomics, And Risk Concepts
2 A Brief History Of Macroeconomics, And Why The Theory Of Asset Pricing And Contingent Claims Should Shape Its Future
3 Macroeconomic Models
4 Stochastic Processes, Asset Pricing, And Option Pricing
5 Balance Sheets, Implicit Options, And Contingent Claims Analysis
6 Further Extensions And Applications Of Contingent Claims Analysis

Part II The Macrofinance Modeling Framework
7 The Macrofinance Modeling Framework: Interlinked Sector Balance Sheets
8 The Macrofinance Modeling Framework: A Closer Look At The Sovereign Cca Balance Sheet
9 The Macrofinance Modeling Framework: Linking Interest Rate Models In Finance And Macroeconomics
10 Macrofinance Modeling Framework:?Financial Sector Risk And Stability Analysis
11 Macrofinancial Modeling Framework: Extensions To Different Exchange Rate Regimes

Part III Linking Macrofinancial And Macroeconomic Frameworks
12 Sovereign Reserve, Debt, And Wealth Management From A Macrofinancial Risk Perspective
13 Macrofinancial Modeling Framework: Relationship To Accounting Balance Sheets And The Flow Of Funds
14 Macrofinancial Risk Framework Linked To Macroeconomic Models

Part IV Crisis And Distress In Economies
15 Macroeconomic Models Vs. Crisis Models: Why Nonlinearity Matters
16 Sensitivity Analysis, Destabilization Mechanisms, And Financial Crises
18 The Brazil Crisis Of 2002–2003

Part V Macrofinancial Model Applications And Analytical Issues
19 International Shocks, Risk Transmission, And Crisis Prevention
20 Macro Risk Management: Ways To Mitigate, Control, And Transfer Risk In The Economy
22 Conclusion And New Directions For Macrofinance

Appendix A The Mundell-Fleming Model With Default Risk