Challenges and Risks in the International Monetary System: An Overview

Abstract

Since 1997, the Department of Economics of the University of Crete has organized annual international conferences on Macroeconomic Analysis and International Finance. The articles included in this special issue are refereed versions of papers presented at the 16th International Conference on Macroeconomic Analysis and International Finance held at the University Campus, Rethymno 24–26 May 2012 in collaboration with Open Economies Review. The central theme of this conference was Challenges and Risks in the International Monetary System. We open this Special Issue of Open Economies Review with an overview of these papers. In “Systematic and Liquidity Risk in Subprime-Mortgage Backed Securities”, Dungey, Dwyer and Flavin argue that the misevaluation of risk in securitized financial products is central to understanding the financial crisis of 2007–2008. They analyze the evolution of a number of factors that have been shown to have affected collateralized debt obligations (CDOs) based on subprime mortgages. The authors build on a theoretical pricing model under which CDOs can be represented as a three factor model, with common shocks, credit-rating shocks and idiosyncratic shocks. They introduce a fourth factor, the vintage factor, which reflects risks associated with the dates during which securities were created. The authors argue that a key feature of subprime-mortgage backed indices is that they are distinct in their vintage of issuance. Using a latent-factor framework, the authors find that the behavior of subprimemortgage backed securities was influenced by these four main factors. In 2006, each Open Econ Rev (2013) 24:1–4 DOI 10.1007/s11079-012-9252-6