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Measuring and Mitigating Systemic Risks: How the Forging of New Alliances between Central Bank and Academic Economists Legitimize the Transnational Macroprudential Agenda

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Ibrocevic,  Edin
International Max Planck Research School on the Social and Political Constitution of the Economy, MPI for the Study of Societies, Max Planck Society;

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Thiemann, M., Melches, C. R., & Ibrocevic, E. (2020). Measuring and Mitigating Systemic Risks: How the Forging of New Alliances between Central Bank and Academic Economists Legitimize the Transnational Macroprudential Agenda. Review of International Political Economy, (published online June 30). doi:10.1080/09692290.2020.1779780.


Cite as: http://hdl.handle.net/21.11116/0000-0006-E238-C
Abstract
After the great financial crisis of 2007–2009, central banks were handed a macroprudential mandate to contain systemic risks, a mandate seen as endangering their independence due to expected distributional conflicts. At the same time, depoliticization through scientific expertise was largely foreclosed, as systemic risk was a largely undefined concept. This paper focuses on how central banks dealt with this conundrum. It examines the scientific debate on systemic risk and macroprudential regulation post-crisis, focusing on the debate’s impact on final regulation. Employing author-topic-modeling on a unique dataset of 2397 published economic papers on the relevant topics, we detect the formation of a new alliance between central bankers and academic economists working jointly on developing systemic risk measures. Centered around a hinge of systemic risk contribution by individual banks, this new alliance expresses itself by incorporating the macroprudential concerns of practitioners into abstract market-based systemic risk measures. These measures develop incrementally, using and repurposing techniques from financial economics pre-crisis to legitimize and justify macroprudential interventions post-crisis. This alliance allows us to account for the incremental change witnessed post-crisis and point to its potential for long-term fundamental change.