GDP at risk in a DSGE model: an application to banking sector stress testing
AbstractWe suggest a complementary tool for financial stability analysis based on stochastic simulation of a dynamic stochastic general equilibrium model (DSGE) of the macro economy. The paper relates to financial stability research in which financial aggregates crucial to financial stability are modelled as functions of macroeconomic variables. In these models, stress tests for eg banking sector loan losses can be generated by considering adverse scenarios of macro variables. A DSGE model provides a systematic way of generating coherent macro scenarios which can be given a rigorous economic interpretation. The approach is illustrated using a DSGE model of the Finnish economy and a simple model of Finnish banking sector loan losses.
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Bibliographic InfoPaper provided by Bank of Finland in its series Research Discussion Papers with number 26/2007.
Length: 27 pages
Date of creation: 19 Dec 2007
Date of revision:
DSGE models; financial stability; loan losses; stress testing;
Find related papers by JEL classification:
- E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-05 (All new papers)
- NEP-CBA-2008-01-05 (Central Banking)
- NEP-CMP-2008-01-05 (Computational Economics)
- NEP-DGE-2008-01-05 (Dynamic General Equilibrium)
- NEP-MAC-2008-01-05 (Macroeconomics)
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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