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A comparative analysis of macro stress-testing methodologies with [An article from: Journal of Financial Stability]
Book Details
Author(s)M. Sorge, K. Virolainen
PublisherElsevier
ISBN / ASINB000P6O9B0
ISBN-13978B000P6O9B7
AvailabilityAvailable for download now
Sales Rank14,427,340
MarketplaceUnited States 🇺🇸
Description
This digital document is a journal article from Journal of Financial Stability, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.
Description:
This paper reviews the state-of-the-art of macro stress-testing methodologies. We assess the progress made both in the econometric analysis of balance sheet indicators and in the simulation of value-at-risk measures to assess system-wide vulnerabilities. To illustrate the main analytical approaches in the literature, we estimate two different models for stress-testing purposes using data for Finland over the time period from 1986 to 2003. The Finnish experience in the early 1990s appears particularly suited for macro stress-testing as it includes a severe recession with significantly higher-than-average default rates and banks' loan losses. We highlight a number of methodological challenges that still remain concerning in particular the correlation of market and credit risks over time and across institutions, the limited time horizon generally used for macro stress-testing and the potential instability of reduced-form parameter estimates because of feedback effects.
Description:
This paper reviews the state-of-the-art of macro stress-testing methodologies. We assess the progress made both in the econometric analysis of balance sheet indicators and in the simulation of value-at-risk measures to assess system-wide vulnerabilities. To illustrate the main analytical approaches in the literature, we estimate two different models for stress-testing purposes using data for Finland over the time period from 1986 to 2003. The Finnish experience in the early 1990s appears particularly suited for macro stress-testing as it includes a severe recession with significantly higher-than-average default rates and banks' loan losses. We highlight a number of methodological challenges that still remain concerning in particular the correlation of market and credit risks over time and across institutions, the limited time horizon generally used for macro stress-testing and the potential instability of reduced-form parameter estimates because of feedback effects.
