Gary Gorton on Measures of Systemic Risk

In a recent working paper, Gary B. Gorton, Frederick Frank Class of 1954 Professor of Management and Finance, and two collaborators propose a system for gathering and disseminating measures of risk in the economy.

In "Risk Topography," Gorton, Markus K. Brunnermeier, and Arvind Krishnamurthy say that the financial crisis of 2007–2008 made it clear that the current systems of national income reporting, developed in response to the Great Depression, are insufficient for understanding a financial system that includes derivatives and off-balance sheet vehicles.

They propose that the new Office of Financial Research, created by the Dodd-Frank Wall Street Reform and Consumer Protection Act, collect information from financial institutions about the effects on their stability of various extreme scenarios.