How to Capture Macro-Financial Spillover Effects in Stress Tests?

 
Author/Editor: Heiko Hesse ; Ferhan Salman ; Christian Schmieder
 
Publication Date: June 12, 2014
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: One of the challenges of financial stability analysis and bank stress testing is how to establish scenarios with meaningful macro-financial linkages, i.e., taking into account spillover effects and other forms of contagion. We come up with an approach to simulate the potential impact of spillover effects based on the “traditional” design of macro-economic stress tests. Specifically, we examine spillover effects observed during the financial crisis and simulate their impact on banks’ liquidity and capital positions. The outcome suggests that spillover effects have a highly non-linear impact on bank soundness, both in terms of liquidity and solvency.
 
Series: Working Paper No. 14/103
Subject(s): Spillovers | Europe | Financial contagion | Financial systems | Stress testing | Regression analysis | Econometric models

 
English
Publication Date: June 12, 2014
ISBN/ISSN: 9781498379083/1018-5941 Format: Paper
Stock No: WPIEA2014103 Pages: 34
Price:
US$18.00 (Academic Rate:
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