Journal Article

Systemic Risk and the Pursuit of Efficiency

Abstract: In this essay, senior economist Kartik Athreya identifies systemic risk with the presence of linkages between market participants, where problems for one directly create problems for others. He argues that such situations can arise from the use of contractual arrangements, especially debt that requires frequent refinancing and liquidation in the event of an inability to repay. The presence of spillover effects can, in turn, lead to outcomes in the wake of shocks that can be improved via policy intervention. Nonetheless, he cautions against taking this as a license to intervene after the fact, and instead suggests that observed contracting arrangements may be important in promoting efficient trade between parties from a before-the-shock perspective.

https://doi.org/10.21144/eq1010103

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Economic Quarterly

Publication Date: 2015

Issue: 1Q

Pages: 23-47