IMF Working Papers

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

By Marcella Lucchetta, Gianni De Nicolo

February 1, 2012

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Marcella Lucchetta, and Gianni De Nicolo. Systemic Real and Financial Risks: Measurement, Forecasting, and Stress Testing, (USA: International Monetary Fund, 2012) accessed December 7, 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

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.

Subject: Bank credit, Financial institutions, Financial sector policy and analysis, Loans, Money, Stress testing, Systemic risk, Systemic risk assessment

Keywords: Bank credit, Bank credit demand shocks, Bank credit growth, Density Forecasts, Dynamic Factor Model, Estimation procedure, Forecasting power, Global, Loan rate, Loans, Quantile auto-regression, Quantile Auto-regressions, Quantile curve, Quantile estimate, Quantile projection, Risk indicator, Stress testing, Systemic risk, Systemic risk assessment, Systemic Risks, Time series, WP

Publication Details

  • Pages:

    41

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2012/058

  • Stock No:

    WPIEA2012058

  • ISBN:

    9781463937768

  • ISSN:

    1018-5941