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Financial Sector Projections and Stress Testing in Financial Programming; A New Framework

  • Antonio Garcia Pascual
  • Nada Choueiri
  • Ritu Basu

This paper proposes a framework to check for consistency between the IMF's standard country surveillance tool, namely medium-term projections of the macroeconomic framework (including the real, fiscal, external, and monetary sectors), and the financial sector. Consistency here entails that the financial sector remain solvent in the medium term under the assumptions of the macroeconomic framework and that the macroeconomic framework is fine-tuned should threats to financial sector solvency arise as a result of assumptions underlying the medium-term macroeconomic framework projections. The proposed framework can also be used to conduct sensitivity analysis of the aggregated financial sector to various types of risks, including foreign exchange, interest rate, and credit risk. For surveillance purposes, this framework can easily be integrated into one of the standard sectoral files so that any update to the macroeconomic framework automatically feeds into the financial sector medium-term projections. We anticipate the proposed framework to be of interest to IMF economists as well as outside analysts.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/33.

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Length: 29
Date of creation: 01 Jan 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/33
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  1. Brad Setser & Nouriel Roubini & Christian Keller & Mark Allen & Christoph B. Rosenberg, 2002. "A Balance Sheet Approach to Financial Crisis," IMF Working Papers 02/210, International Monetary Fund.
  2. Renzo G Avesani, 2005. "FIRST; A Market-Based Approach to Evaluate Financial System Risk and Stability," IMF Working Papers 05/232, International Monetary Fund.
  3. Maria Soledad Martinez Peria & Giovanni Majnoni & Matthew T Jones & Winfrid Blaschke, 2001. "Stress Testing of Financial Systems; An Overview of Issues, Methodologies, and FSAP Experiences," IMF Working Papers 01/88, International Monetary Fund.
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