Stress-testing macro stress testing: does it live up to expectations?
AbstractWe critically review the state of the art in macro stress testing, assessing its strengths and weaknesses. We argue that, given current technology, macro stress tests are ill-suited as early warning devices, ie as tools for identifying vulnerabilities during seemingly tranquil times and for triggering remedial action. By contrast, as long as properly designed, stress tests can be quite effective as crisis management and resolution tools. We also see additional side benefits, stemming largely from the way such tests can discipline thinking about financial stability. We suggest possible ways to improve their performance.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank for International Settlements in its series BIS Working Papers with number 369.
Length: 28 pages
Date of creation: Jan 2012
Date of revision:
stress tests; financial instability; macroprudential;
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.:
- Jacobson, Tor & Linde, Jesper & Roszbach, Kasper, 2005.
"Exploring interactions between real activity and the financial stance,"
Journal of Financial Stability,
Elsevier, vol. 1(3), pages 308-341, April.
- Jacobson, Tor & Lindé, Jesper & Roszbach, Kasper, 2005. "Exploring Interactions between Real Activity and the Financial Stance," Working Paper Series 184, Sveriges Riksbank (Central Bank of Sweden).
- Bank for International Settlements, 2005. "Stress testing at major financial institutions: survey results and practice," CGFS Papers, Bank for International Settlements, number 24, January.
- Elsinger, Helmut & Lehar, Alfred & Summer, Martin, 2002.
"Risk Assessment for Banking Systems,"
79, Oesterreichische Nationalbank (Austrian Central Bank).
- Claudio Borio & Bent Vale & Goeth von Peter, 2010.
"Resolving the financial crisis: are we heeding the lessons from the Nordics?,"
BIS Working Papers
311, Bank for International Settlements.
- Claudio Borio & Bent Vale & Goetz von Peter, 2010. "Resolving the financial crisis: are we heeding the lessons from the Nordics?," Working Paper 2010/17, Norges Bank.
- Drehmann, Mathias & Sorensen, Steffen & Stringa, Marco, 2010. "The integrated impact of credit and interest rate risk on banks: A dynamic framework and stress testing application," Journal of Banking & Finance, Elsevier, vol. 34(4), pages 713-729, April.
- Aikman, David & Alessandri, Piergiorgio & Eklund, Bruno & Gai, Prasanna & Kapadia, Sujit & Martin, Elizabeth & Mora, Nada & Sterne, Gabriel & Willison, Matthew, 2009.
"Funding liquidity risk in a quantitative model of systemic stability,"
Bank of England working papers
372, Bank of England.
- David Aikman & Piergiorgio Alessandri & Bruno Eklund & Prasanna Gai & Sujit Kapadia, & Elizabeth Martin, & Nada Mora & Gabriel Sterne & Matthew Willison, 2011. "Funding Liquidity Risk in a Quantitative Model of Systemic Stability," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 12, pages 371-410 Central Bank of Chile.
- David Aikman & Piergiorgio Alessandri & Bruno Eklund & Prasanna Gai & Sujit Kapadia & Elizabeth Martin & Nada Mora & Gabriel Sterne & Matthew Willison, 2009. "Funding Liquidity Risk in a Quantitative Model of Systemic Stability," Working Papers Central Bank of Chile 555, Central Bank of Chile.
- Ingo Fender & Nikola Tarashev & Haibin Zhu, 2008. "Credit fundamentals, ratings and value-at-risk: CDOs versus corporate exposures," BIS Quarterly Review, Bank for International Settlements, March.
- Beverly Hirtle & Til Schuermann & Kevin Stiroh, 2009. "Macroprudential supervision of financial institutions: lessons from the SCAP," Staff Reports 409, Federal Reserve Bank of New York.
- Rodrigo Alfaro & Mathias Drehmann, 2009. "Macro stress tests and crises: what can we learn?," BIS Quarterly Review, Bank for International Settlements, December.
- Ubl, Eva & Schneider, Martin & Fenz, Gerhard & Krenn, Gerald & Boss, Michael & Scheiber, Thomas & Schmitz, Stefan W. & Pann, Johannes & Puhr, Claus, 2008. "Stress Tests for the Austrian FSAP Update 2007: Methodology, Scenarios and Results," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 15.
- repec:onb:oenbwp:y:2008:i:15:b:1 is not listed on IDEAS
- De Graeve, F. & Kick, T. & Koetter, M., 2008. "Monetary policy and financial (in)stability: An integrated micro-macro approach," Journal of Financial Stability, Elsevier, vol. 4(3), pages 205-231, September.
- Andreas A. Jobst & Li L. Ong & Christian Schmieder, 2013. "A Framework for Macroprudential Bank Solvency Stress Testing: Application to S-25 and Other G-20 Country FSAPs," IMF Working Papers 13/68, International Monetary Fund.
- Rodolfo Maino & Kalin Tintchev, 2012. "From Stress to CoStress: Stress Testing Interconnected Banking Systems," IMF Working Papers 12/53, International Monetary Fund.
- Adam Gersl & Petr Jakubik & Tomas Konecny & Jakub Seidler, 2012. "Dynamic Stress Testing: The Framework for Testing Banking Sector Resilience Used by the Czech National Bank," Working Papers 2012/11, Czech National Bank, Research Department.
- Zlatuse Komarkova & Marcela Gronychova, 2012. "Models for Stress Testing in the Insurance Sector," Research and Policy Notes 2012/02, Czech National Bank, Research Department.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Timo Laurmaa).
If references are entirely missing, you can add them using this form.