Unproductive debt

Credit and related interest income have historically been viewed as service and related payment for lending productively. However, in a highly collateralized and risk-averse...

How central banks can take nominal rates deeply negative

The popular view that nominal interest rates have a natural zero lower bound has become obsolete in modern financial systems. It may be more...

Bayesian Risk Forecasting

Portfolio risk forecasting is subject to great parameter uncertainty, particularly for longer forward horizons. This simply reflects that large drawdowns are observed only rarely,...

The duration extraction effect

Under non-conventional monetary policy central banks influence financial markets through the “portfolio rebalancing channel”. The purchase of assets changes the structure of prices. A...

Tiered reserve systems

Negative monetary policy rates can undermine financial transmission, because they encourage cash hoarding and reduce the profitability of traditional banking. This danger increases with...

Signaling systemic risk

Systemic financial crises arise when vulnerable financial systems meet adverse shocks. A systemic risk indicator tracks the vulnerability rather than the shocks (which are...

How to estimate risk in extreme market situations

Estimating portfolio risk in extreme situations means answering two questions: First, has the market entered an extreme state? Second, how are returns likely to...

Understanding China’s “financial policy”

In most developed countries macroeconomic management is the domain of separate fiscal and monetary policies. In China, the focus is on “financial policy”, a...

ECB policy framework in six basic points

The European Central Bank is one of the most powerful institutions in the world and is running a particularly complex policy framework. For macro...

How systemic financial risk is measured

Public institutions have developed a wide range of methods to track systemic financial risk. What most of them have in common is reliance on...

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