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Macroeconomic efault Modeling and Stress Testing

Author

Listed:
  • Dietske Simons

    (De Nederlandsche Bank)

  • Ferdinand Rolwes

    (De Nederlandsche Bank)

Abstract

This paper applies a macroeconomic-based model for estimating probabilities of default. The first part of the paper focuses on the relation between macroeconomic variables and the default behavior of Dutch firms. A convincing relationship with GDP growth and oil price and, to a lesser extent, the interest and exchange rate exists. The second part of the paper assesses the default behavior based on a stress scenario of two consecutive quarters of zero GDP growth as required by the Basel II framework. It can be concluded that a stress-test scenario covering two quarters of zero GDP growth does not influence the default rate significantly and thus does not seem to be very severe.

Suggested Citation

  • Dietske Simons & Ferdinand Rolwes, 2009. "Macroeconomic efault Modeling and Stress Testing," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 177-204, September.
    • Handle: RePEc:ijc:ijcjou:y:2009:q:3:a:6
    as

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    References listed on IDEAS

    as
    1. André Lucas & Siem Jan Koopman, 2005. "Business and default cycles for credit risk," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 311-323.
    2. Mr. Jorge A Chan-Lau, 2006. "Fundamentals-Based Estimation of Default Probabilities - A Survey," IMF Working Papers 2006/149, International Monetary Fund.
    3. Glenn Hoggarth & Andrew Logan & Lea Zicchino, 2005. "Macro stress tests of UK banks," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 392-408, Bank for International Settlements.
    4. Carling, Kenneth & Jacobson, Tor & Lindé, Jesper & Roszbach, Kasper, 2002. "Capital Charges under Basel II: Corporate Credit Risk Modelling and the Macro Economy," Working Paper Series 142, Sveriges Riksbank (Central Bank of Sweden).
    5. repec:zbw:bofrdp:2004_018 is not listed on IDEAS
    6. Petr Jakubík, 2006. "Does Credit Risk Vary with Economic Cycles? The Case of Finland," Working Papers IES 2006/11, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Apr 2006.
    7. Gertjan W. Vlieghe, 2001. "Indicators of fragility in the UK corporate sector," Bank of England working papers 146, Bank of England.
    8. Hamerle, Alfred & Liebig, Thilo & Scheule, Harald, 2004. "Forecasting Credit Portfolio Risk," Discussion Paper Series 2: Banking and Financial Studies 2004,01, Deutsche Bundesbank.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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