IMF Working Papers

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

By Heiko Hesse, Ferhan Salman, Christian Schmieder

June 12, 2014

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Heiko Hesse, Ferhan Salman, and Christian Schmieder. How to Capture Macro-Financial Spillover Effects in Stress Tests?, (USA: International Monetary Fund, 2014) accessed December 9, 2024
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.

Subject: Asset and liability management, Banking, Financial sector policy and analysis, Liquidity, Liquidity stress testing, Solvency, Solvency stress testing, Stress testing

Keywords: Bank, Bank level, Bank reaction, Bank solvency, Contagion, Global, IMF liquidity stress, Liquidity, Liquidity stress testing, Macro-financial linkages, Measures bank, Scenarios, Solvency, Solvency risk, Solvency stress testing, Spillover, Spillover effect, Stress testing, WP

Publication Details

  • Pages:

    34

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2014/103

  • Stock No:

    WPIEA2014103

  • ISBN:

    9781498379083

  • ISSN:

    1018-5941