We investigate the dynamics of the relationship between returns and extreme downside risk in different states of the market by combining the framework of Bali, Demirtas, and Levy (2009) with a Markov switching mechanism. We show that the risk-return relationship identified by Bali, Demirtas, and...

We present a framework for measuring the evolution of risks to financial stability over the financial cycle, which we apply to the United Kingdom. We identify 29 indicators of financial stability risk, drawing from the literature on early warning indicators of banking crises. We normalise and...

This paper describes a quantitative, data-driven method to assess vulnerabilities in a range of countries. We provide country-level vulnerability indices which can be used to gauge the level of fragility at any point in time. In particular, our results suggest that in the run-up to the Global...

We build a framework to simulate stress dynamics in the UK corporate bond market. This quantifies how the behaviours and interactions of major market participants, including open-ended funds, dealers, and institutional investors, can amplify different types of shocks to corporate bond prices. We...

We study solvency contagion risk in the UK banking system from 2008 to 2015. We develop a model that only accounts for losses transmitted after banks default, but also for losses due to the fact that creditors revalue their exposures when probabilities of default of their counterparties change....

In this paper we investigate the price, volatility and micro-level effects of central bank swap lines during the 2020 pandemic. These policies lowered the ceiling on covered interest rate parity violations and reduced volatility following settlement of swap line auctions. We then combine...

In this paper, we use a simple endogenous growth model to show how a financial crisis might have a permanent effect on the level of total factor productivity (TFP). In the model, a financial shock leads to a rise in the spread between the rate of interest paid by firms and the risk-free rate....