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Stress Testing of the Central Bank of Costa Rica: Risk Assessment of Fixed-Income Instruments

Author

Listed:
  • Adriana Corrales-Quesada

    (Economic Division, Central Bank of Costa Rica)

  • Fabio Gómez-Rodríguez

    (Department of Economic Research, Central Bank of Costa Rica)

  • Carlos Segura-Rodriguez

    (Department of Economic Research, Central Bank of Costa Rica)

Abstract

This technical note describes the procedure currently used by the Central Bank of Costa Rica (BCCR, by its initials in Spanish) to conduct stress tests on the portfolios of financial entities. The analysis identified two opportunities for improvement compared to the current practice; a procedure that was implemented as part of a technical assistance provided by the IMF. First, the stress tests are calculated based on the estimation of the PAR yield curves in colones and dollars carried out by the BCCR, which better reflect the behavior of the Costa Rican market. Secondly, resampling methods are used to determine the loss distribution based on available data, rather than using only predefined shocks, which facilitates the comparison of the predefined shocks currently used with the actual observed events. In conclusion, it is recommended to implement these two improvements in the execution of the stress tests.

Suggested Citation

  • Adriana Corrales-Quesada & Fabio Gómez-Rodríguez & Carlos Segura-Rodriguez, 2024. "Stress Testing of the Central Bank of Costa Rica: Risk Assessment of Fixed-Income Instruments," Notas Técnicas 2401, Banco Central de Costa Rica.
    • Handle: RePEc:apk:nottec:2401
    as

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    File URL: https://repositorioinvestigaciones.bccr.fi.cr/handle/20.500.12506/392
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    References listed on IDEAS

    as
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    4. Svensson, Lars E O, 1994. "Estimating and Interpreting Forward Interest Rates: Sweden 1992-4," CEPR Discussion Papers 1051, C.E.P.R. Discussion Papers.
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    Keywords

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    JEL classification:

    • 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
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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