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Macro Stress Testing for Indian Banking: VAR Approach

Author

Listed:
  • SINGH, SANJAY

    (Financial Stability Unit, Reserve Bank of India)

  • MAJUMDAR, S.

    (Financial Stability Unit, Reserve Bank of India)

Abstract

A vast body of literature endorses the fact that the changes in the macroeconomic conditions of an economy do impact banks’ performance, simultaneously or with a lag. It is also possible that the feedback effects of bank instability on real economic activity could amplify the fluctuations especially during recessions. Therefore, in order to judge the resilience of banking to various macroeconomic shocks, macro stress test using Vector Autoregressive (VAR) approach has been adopted. Based on empirical results it is found that macroeconomic variables do have significant impact on banks’ stability.

Suggested Citation

  • Singh, Sanjay & Majumdar, S., 2013. "Macro Stress Testing for Indian Banking: VAR Approach," Indian Economic Review, Department of Economics, Delhi School of Economics, vol. 48(2), pages 275-296.
    • Handle: RePEc:dse:indecr:0073
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    Citations

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    Cited by:

    1. Nithin Mani & Alok Kumar Mishra & Jijin Pandikasala, 2023. "How Serious is India’s Nonperforming Assets Crisis? A Structural Satellite Version of the Financial-Macroeconometric Model," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 30(4), pages 761-794, December.
    2. Dua, Pami & Kapur, Hema, 2018. "Macro stress testing and resilience assessment of Indian banking," Journal of Policy Modeling, Elsevier, vol. 40(2), pages 452-475.

    More about this item

    Keywords

    Macro Stress Testing; Slippage Ratio; VAR; Impulse Response Function;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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