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GCRI · Science

Financial economics and macro-finance

Financial economics and macro-finance study how asset prices, credit and financial institutions interact with the real economy. They explain how shocks are amplified or absorbed through balance sheets and markets. Financial Stability stewards this page for the Nexus Consortium.

01Workspace

The workspace for financial economics and macro-finance.

Econometric model

The Global Centre for Risk and Innovation (GCRI) · Financial economics · Run R-3781 · Example interface, not a record

Estimates stableGCRI · GCRI

Estimates

robust standard errors

Country programmes active−0.080.18[−0.3, 0.2]No
Evidence records with labels0.620.18[−0.3, 0.3]No
Methods applied0.420.14[0.1, 0.5]Yes
Reports released−0.250.12[−0.5, 0.4]No

Method card

Method
Financial economics and macro-finance
Sample
5486 obs
Design
panel, fixed effects
Label
MODELLED

Residuals by group

Econometric model.Illustrative interface; not live data.

GCRI · Econometric model. Econometric model: example names and illustrative values, not a record.

02The method

What financial economics and macro-finance covers.

  1. 01

    Core methods

    asset pricing models; credit risk modelling; macro-financial modelling; systemic risk measurement; event studies; balance sheet analysis.

  2. 02

    Data and instruments

    market price and yield data; supervisory returns; corporate financial statements; flow of funds accounts; credit registries.

  3. 03

    Validation

    Models are back-tested against historical market episodes and crises. Results are compared with supervisory data and alternative specifications.

  4. 04

    Limits

    Relationships estimated in calm periods may break down in stress. Hidden leverage and interconnections are often unobserved.

  5. 05

    Use in risk decisions

    Financial economics traces how physical, health or cyber shocks transmit to credit, sovereign debt and markets. It informs macroprudential policy and the pricing of risk.

03Reference practice

Financial economics informs supervisory and disclosure practice.

ReferenceWhat it sets
Basel Committee standardsBank capital and liquidity
NGFS scenariosClimate scenarios for financial analysis
IFRS S2Climate-related financial disclosure
Financial Stability BoardSystem-wide vulnerabilities
04Process

How the process runs.

Process

Financial economics and macro-finance: Hazard, exposure, vulnerability

In IPCC AR6 Working Group II, climate risk results from interactions between hazards and a system’s exposure and vulnerability, and responses can add risk.

  1. 01 Drivers

    1. 01HazardDataset · Competent authorityThe potential occurrence of a natural or human-induced physical event or trend that may harm people, property, services or ecosystems.
    2. 02ExposureDataset · Competent authorityThe presence of people, livelihoods, species, ecosystems, infrastructure or assets in places and settings that could be adversely affected.
    3. 03SensitivityDataset · Competent authorityThe degree to which a system or species is affected, either adversely or beneficially, by climate variability or change.
    4. 04Capacity to cope and adaptDataset · Competent authorityThe ability of systems, institutions, humans and other organisms to adjust to damage, take opportunities or respond to consequences.
  2. 02 Assessment

    1. 05Risk from responsesComponent · Competent authorityRisks from climate responses arise when responses miss their objectives, or from trade-offs or negative side effects.
    2. 06VulnerabilityComponent · Competent authorityThe propensity or predisposition to be adversely affected. It includes sensitivity to harm and lack of capacity to cope and adapt.
    3. 07RiskModel · The Global Centre for Risk and InnovationRisk results from dynamic interactions between hazards and the system’s exposure and vulnerability. Each may be uncertain and change.
  3. 03 Response

    1. 08Risk management and responseStep · Competent authorityRisk management is plans, actions, strategies or policies that reduce the likelihood or size of adverse consequences.
    2. 09Residual riskRecord · Competent authorityThe climate impact risk that remains after adaptation and mitigation efforts. Adaptation can redistribute risk between areas and groups.
  4. 04 Decision

    1. 10Decision by the responsible partyDecision · Competent authorityThe framing names no single decision maker. Decisions on responses rest with the responsible party under its own rules.

Outline of an external standard or method, from its public sources. It describes what the framework says, not a record of any run. It does not show that Nexus or any partner performs, certifies or approves a step. A gate is a step of the method, never a Nexus approval.

05In systemic risk work

Where science meets the balance sheet.

Financial economics explains how physical and transition shocks become credit losses, repricing and liquidity stress. GCRI’s interest is the interface: hazard and exposure analysis in a form that financial models can use, with uncertainty that survives the translation. The sector analysis itself is GRA’s mandate.

  • Translate hazard probabilities into loss distributions, not single scenarios only.
  • Avoid treating scenario outputs as forecasts.
  • Nothing in this analysis is investment advice.
07Stewardship

Who maintains this page.

Financial Stability stewards financial economics and macro-finance: it keeps this description current and reviews how the method is applied across the platforms.

08Sources

Where this page’s references lead.

The bodies and documents this page is read against. Status and editions change; each link goes to the issuing body.

09Questions

Questions and answers.

Why does one institution host every method page?
GCRI hosts the STEM Commons so that each method has one canonical description. Platforms link to it rather than repeat it, which keeps definitions consistent.
How do I suggest a correction to a method page?
Write to the integrity concern form with the passage and the reason.
ReportsContribute

Contribute evidence from this page.

Reports is the Consortium’s quarterly publication. What you know about this subject can become evidence, a case or a correction in the next edition, credited to you and published under CC BY 4.0 where it is your own work.

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The Global Centre for Risk and Innovation

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Information and enquiries are open today. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.