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Systemic Real and Financial Risks; Measurement, Forecasting, and Stress Testing

  • Marcella Lucchetta
  • Gianni De Nicoló

This paper formulates a novel modeling framework that delivers: (a) forecasts of indicators of systemic real risk and systemic financial risk based on density forecasts of indicators of real activity and financial health; (b) stress-tests as measures of the dynamics of responses of systemic risk indicators to structural shocks identified by standard macroeconomic and banking theory. Using a large number of quarterly time series of the G-7 economies in 1980Q1-2010Q2, we show that the model exhibits significant out-of sample forecasting power for tail real and financial risk realizations, and that stress testing provides useful early warnings on the build-up of real and financial vulnerabilities.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/58.

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Length: 41
Date of creation: 01 Feb 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/58
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  1. Joseph G. Haubrich & Andrew W. Lo, 2013. "Quantifying Systemic Risk," NBER Books, National Bureau of Economic Research, Inc, number haub10-1, June.
  2. Huisman, Ronald, et al, 2001. "Tail-Index Estimates in Small Samples," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(2), pages 208-16, April.
  3. Victor Chernozhukov & Ivan Fernandez-Val & Alfred Galichon, 2010. "Quantile and Probability Curves without Crossing," Sciences Po publications info:hdl:2441/5rkqqmvrn4t, Sciences Po.
  4. Harald Uhlig & Pooyan Amir Ahmadi, 2012. "Measuring The Dynamic Effects Of Monetary Policy Shocks: A Bayesian Favar Approach With Sign Restriction," 2012 Meeting Papers 1060, Society for Economic Dynamics.
  5. James H. Stock & Mark W. Watson, 2005. "Implications of Dynamic Factor Models for VAR Analysis," NBER Working Papers 11467, National Bureau of Economic Research, Inc.
  6. repec:spo:wpecon:info:hdl:2441/5rkqqmvrn4tl22s9mc4b6ga2g is not listed on IDEAS
  7. Andrew T. Foerster & Pierre-Daniel G. Sarte & Mark W. Watson, 2008. "Sectoral vs. aggregate shocks : a structural factor analysis of industrial production," Working Paper 08-07, Federal Reserve Bank of Richmond.
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