Good ideas and conversation. No ads, no tracking. Login or Take a Tour!
- The problem is that R cannot in practice actually be used as a way to predict financial disasters. So unless we’re missing something it’s of questionable practical use, beyond as a new conceptual take on an ancient realisation: rate shocks often reveal financial faultlines.
As the paper points out, the modelled R readings looked comfortably high in the late 1990s — until LTCM suddenly blew up. It was similarly sanguine in the noughties — right up until the global financial crisis erupted.