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Fire-sale spillovers and systemic risk
We reveal and track over time the factors making the financial system vulnerable to fire sales by constructing an index of aggregate vulnerability. The index starts increasing in 2004, before any other major systemic risk measure, more than doubling by 2008. The fire-sale-specific factors of delevering speed and concentration of illiquid assets account for the majority of this increase. Individual banks? contributions to aggregate vulnerability are an excellent five-year-ahead predictor of SRISK, one of the most prominent systemic risk measures. Had our estimates been available at the time, ...