A Time Series Analysis of Financial Fragility in the UK Banking System 

Charles A.E. Goodhart: Bank of England, London School of Economics, and Financial Markets Group

Pojanart Sunirand: Bank of England and London School of Economics 

Dimitrios P. Tsomocos: Bank of England, Said Business School and St. Edmund Hall, University of Oxford, and Financial Markets Group

Abstract

This paper extends the model proposed by Goodhart, Sunirand, and Tsomocos (2003, 2004a, b) to an infinite horizon setting. Thus, we are able to assess how the model conforms with the time series data of the U.K. banking system. We conclude that, since the model performs satisfactorily, it can be readily used to assess financial fragility given its flexibility, computability, and the presence of multiple contagion channels and heterogeneous banks and investors. 

JEL Classification: C68; E4; E5; G11; G21 

Keywords: Financial Fragility; Systemic Risk; U.K. Banking System; Default

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