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

Author/Editor: De Nicoló, Gianni | Lucchetta, Marcella
Authorized for Distribution: February 1, 2012
Electronic Access: Free Full Text (PDF file size is 1,042KB)
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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: 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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Series: Working Paper No. 12/58
Subject(s): Economic indicators | Financial risk | Forecasting models | Group of seven | Time series
Author's keyword(s): Systemic Risks | Dynamic Factor Model | Quantile Auto-regressions | Density Forecasts
 
English  
    Published:   February 1, 2012        
            Format:   Paper
    Stock No:   WPIEA2012058   Pages:   40
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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