IDEAS home Printed from https://ideas.repec.org/p/bca/bocatr/113.html
   My bibliography  Save this paper

The Framework for Risk Identification and Assessment

Author

Listed:
  • Cameron MacDonald
  • Virginie Traclet

Abstract

Risk assessment models are an important component of the Bank’s analytical tool kit for assessing the resilience of the financial system. We describe the Framework for Risk Identification and Assessment (FRIDA), a suite of models developed at the Bank of Canada to quantify the impact of financial stability risks to the broader economy and a range of financial system participants (households, businesses and banks). These risks are tail-risk events that are rare and severe but plausible. FRIDA combines models that quantify the impact of risks on both aggregate macrofinancial variables and different types of financial system participants, thus allowing us to understand the channels through which severe shocks could be transmitted and amplified within the financial system. By including sectoral models, FRIDA can consider the rich institutional features and heterogeneity that characterize different parts of the financial system and capture the various channels through which they can be affected by shocks. Like any model, FRIDA faces model uncertainty. Consequently, results from FRIDA are used in combination with expert judgment to form an overall assessment of financial stability risks.

Suggested Citation

  • Cameron MacDonald & Virginie Traclet, 2018. "The Framework for Risk Identification and Assessment," Technical Reports 113, Bank of Canada.
    • Handle: RePEc:bca:bocatr:113
    as

    Download full text from publisher

    File URL: https://www.bankofcanada.ca/wp-content/uploads/2018/11/tr113.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Duprey, Thibaut & Klaus, Benjamin & Peltonen, Tuomas, 2017. "Dating systemic financial stress episodes in the EU countries," Journal of Financial Stability, Elsevier, vol. 32(C), pages 30-56.
    2. Jean-Charles Rochet & Xavier Vives, 2004. "Coordination Failures and the Lender of Last Resort: Was Bagehot Right After All?," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1116-1147, December.
    3. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
    4. Nelson C. Mark & Masao Ogaki & Donggyu Sul, 2005. "Dynamic Seemingly Unrelated Cointegrating Regressions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 72(3), pages 797-820.
    5. Neville Arjani & Graydon Paulin, 2013. "Lessons from the Financial Crisis: Bank Performance and Regulatory Reform," Discussion Papers 13-4, Bank of Canada.
    6. Chan, Winnie & Morissette, Rene & Frenette, Marc, 2011. "Workers Laid-off During the Last Three Recessions: Who Were They, and How Did They Fare?," Analytical Studies Branch Research Paper Series 2011337e, Statistics Canada, Analytical Studies Branch.
    7. Thibaut Duprey, 2018. "Asymmetric Risks to the Economic Outlook Arising from Financial System Vulnerabilities," Staff Analytical Notes 2018-6, Bank of Canada.
    8. Sharon Kozicki & Jill Vardy, 2017. "Communicating Uncertainty in Monetary Policy," Discussion Papers 17-14, Bank of Canada.
    9. Jose Fique, 2017. "The MacroFinancial Risk Assessment Framework (MFRAF), Version 2.0," Technical Reports 111, Bank of Canada.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Grzegorz Halaj & Sofia Priazhkina, 2021. "Stressed but not Helpless: Strategic Behaviour of Banks Under Adverse Market Conditions," Staff Working Papers 21-35, Bank of Canada.
    2. Thibaut Duprey & Xuezhi Liu & Cameron MacDonald & Maarten van Oordt & Sofia Priazhkina & Xiangjin Shen & Joshua Slive, 2018. "Modelling the Macrofinancial Effects of a House Price Correction in Canada," Staff Analytical Notes 2018-36, Bank of Canada.
    3. Nicholas Garvin & Samuel Kurian & Mike Major & David Norman, 2022. "Macrofinancial Stress Testing on Australian Banks," RBA Research Discussion Papers rdp2022-03, Reserve Bank of Australia.
    4. Thibaut Duprey, 2020. "Canadian Financial Stress and Macroeconomic Condition," Canadian Public Policy, University of Toronto Press, vol. 46(S3), pages 236-260, October.
    5. Tatiana Tikhonova & Olga Shik, 2008. "Alternative Employment in Rural Area in Russia," Research Paper Series, Gaidar Institute for Economic Policy, issue 114P, pages 224-224.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. König, Philipp J. & Pothier, David, 2018. "Safe but fragile: Information acquisition, sponsor support and shadow bank runs," Discussion Papers 15/2018, Deutsche Bundesbank.
    2. Sebastian Infante & Alexandros Vardoulakis, 2018. "Collateral Runs," Finance and Economics Discussion Series 2018-022, Board of Governors of the Federal Reserve System (U.S.).
    3. Claudio Borio & Mathias Drehmann, 2011. "Toward an Operational Framework for Financial Stability: “Fuzzy” Measurement and Its Consequences," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Alfaro (ed.),Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 4, pages 063-123, Central Bank of Chile.
    4. T. R. Hurd, 2018. "Bank Panics And Fire Sales, Insolvency And Illiquidity," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 21(06), pages 1-30, September.
    5. Philipp Koenig & David Pothier, 2016. "Information Acquisition and Liquidity Dry-Ups," SFB 649 Discussion Papers SFB649DP2016-045, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    6. Xavier Vives, 2011. "Competition and Stability in Banking," Central Banking, Analysis, and Economic Policies Book Series, in: Luis Felipe Céspedes & Roberto Chang & Diego Saravia (ed.),Monetary Policy under Financial Turbulence, edition 1, volume 16, chapter 12, pages 455-502, Central Bank of Chile.
    7. Sylvain Champonnois, 2009. "Bank Competition and Economic Stability: The Role of Monetary Policy," 2009 Meeting Papers 1118, Society for Economic Dynamics.
    8. Farmer, J. Doyne & Kleinnijenhuis, Alissa & Nahai-Williamson, Paul & Wetzer, Thom, 2020. "Foundations of system-wide financial stress testing with heterogeneous institutions," INET Oxford Working Papers 2020-14, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    9. Céline Gauthier & Moez Souissi & Xuezhi Liu, 2014. "Introducing Funding Liquidity Risk in a Macro Stress-Testing Framework," International Journal of Central Banking, International Journal of Central Banking, vol. 10(4), pages 105-142, December.
    10. Xuewen Liu, 2023. "A Model of Systemic Bank Runs," Journal of Finance, American Finance Association, vol. 78(2), pages 731-793, April.
    11. Xavier Freixas, 2009. "Monetary policy in a systemic crisis," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 25(4), pages 630-653, Winter.
    12. Brunnermeier, Markus K. & Oehmke, Martin, 2013. "Bubbles, Financial Crises, and Systemic Risk," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, volume 2, chapter 0, pages 1221-1288, Elsevier.
    13. Ahnert, Toni & Anand, Kartik & Gai, Prasanna & Chapman, James, 2015. "Safe, or not safe? Covered bonds and Bank Fragility," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112875, Verein für Socialpolitik / German Economic Association.
    14. Xavier Vives, 2014. "Strategic Complementarity, Fragility, and Regulation," The Review of Financial Studies, Society for Financial Studies, vol. 27(12), pages 3547-3592.
    15. Franklin Allen & Elena Carletti, 2013. "Financial Markets, Institutions and Liquidity," RBA Annual Conference Volume (Discontinued), in: Alexandra Heath & Matthew Lilley & Mark Manning (ed.),Liquidity and Funding Markets, Reserve Bank of Australia.
    16. Zhang, Lei & Zhang, Lin & Zheng, Yong, 2013. "Wholesale Funding, Coordination, and Credit Risk," CAGE Online Working Paper Series 124, Competitive Advantage in the Global Economy (CAGE).
    17. Augusto de la Torre & Alain Ize, 2016. "The Conceptual Foundations of Macroprudential Policy: A Roadmap," International Finance, Wiley Blackwell, vol. 19(3), pages 333-352, December.
    18. Eva Lütkebohmert & Daniel Oeltz & Yajun Xiao, 2017. "Endogenous Credit Spreads and Optimal Debt Financing Structure in the Presence of Liquidity Risk," European Financial Management, European Financial Management Association, vol. 23(1), pages 55-86, January.
    19. Cont, Rama & Kotlicki, Artur & Valderrama, Laura, 2020. "Liquidity at risk: Joint stress testing of solvency and liquidity," Journal of Banking & Finance, Elsevier, vol. 118(C).
    20. Farmer, J. Doyne & Wiersema, Garbrand & Kemp, Esti, 2023. "Liquidity Spirals," INET Oxford Working Papers 2023-16, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.

    More about this item

    Keywords

    Economic models; Financial Institutions; Financial stability; Housing;
    All these keywords.

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • D1 - Microeconomics - - Household Behavior
    • G0 - Financial Economics - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bca:bocatr:113. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bocgvca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.