Macro stress tests and crises: what can we learn?
AbstractFew, if any, of the macro stress tests undertaken before the current crisis uncovered significant vulnerabilities. This article examines the reasons for the poor performance by comparing the outcomes of simple stress tests with actual events for a large sample of historical banking crises. The results highlight that the structural assumptions underlying stress testing models do not match output growth around many crises. Furthermore, unless macro conditions are already weak prior to the eruption of the crisis, the vast majority of stress scenarios based on historical data are not severe enough. Last, stress testing models are not robust, as statistical relationships tend to break down during crises. These insights have important implications for the design and conduct of stress tests in the future.
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Bibliographic InfoArticle provided by Bank for International Settlements in its journal BIS Quarterly Review.
Volume (Year): (2009)
Issue (Month): (December)
Find related papers by JEL classification:
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G01 - Financial Economics - - General - - - Financial Crises
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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"Forecasting Economic Time Series,"
Cambridge University Press, number 9780521634809, December.
- Reinhart, Carmen & Rogoff, Kenneth, 2009.
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"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Gary Gorton, 1986.
"Banking panics and business cycles,"
86-9, Federal Reserve Bank of Philadelphia.
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