... According to Johansen's likelihood ratio tests, the US rate is weakly exogenous prio... more ... According to Johansen's likelihood ratio tests, the US rate is weakly exogenous prior to German unification, but the German rate becomes the sole weakly exogenous variable in the system thereafter (see Table 3 for the results of the weak exogeneity and neutrality tests). ...
We investigate the consequences of overleveraging and the potential for destabilizing effects ari... more We investigate the consequences of overleveraging and the potential for destabilizing effects arising from financial- and real-sector interactions. In a theoretical framework, we model overleveraging and demonstrate how a highly leveraged banking system can lead to unstable dynamics and downward spirals. Inspired by models developed by Brunnermeier, Sannikov and Stein, we empirically measure the deviation-from-optimal-leverage for a sample of large EU banks. This measure of overleveraging is used to condition the joint dynamics of credit flows and macroeconomic activity in a large-scale regime change model: a Threshold Mixed-Cross-Section Global Vector Autoregressive (T-MCS-GVAR). The regime-switching component of the model is meant to make the relationship between credit and real activity dependent on the extent to which the banking system is overleveraged. We find significant nonlinearities as a function of overleverage. The farther the observed leverage in the banking system from...
... According to Johansen's likelihood ratio tests, the US rate is weakly exogenous prio... more ... According to Johansen's likelihood ratio tests, the US rate is weakly exogenous prior to German unification, but the German rate becomes the sole weakly exogenous variable in the system thereafter (see Table 3 for the results of the weak exogeneity and neutrality tests). ...
We investigate the consequences of overleveraging and the potential for destabilizing effects ari... more We investigate the consequences of overleveraging and the potential for destabilizing effects arising from financial- and real-sector interactions. In a theoretical framework, we model overleveraging and demonstrate how a highly leveraged banking system can lead to unstable dynamics and downward spirals. Inspired by models developed by Brunnermeier, Sannikov and Stein, we empirically measure the deviation-from-optimal-leverage for a sample of large EU banks. This measure of overleveraging is used to condition the joint dynamics of credit flows and macroeconomic activity in a large-scale regime change model: a Threshold Mixed-Cross-Section Global Vector Autoregressive (T-MCS-GVAR). The regime-switching component of the model is meant to make the relationship between credit and real activity dependent on the extent to which the banking system is overleveraged. We find significant nonlinearities as a function of overleverage. The farther the observed leverage in the banking system from...
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Papers by Jérôme Henry