## Macro-Prudential Stress Test Models: A Survey

_IMF Working Papers, August 25, 2023_

## Source details

**Canonical URL:** [Macro-Prudential Stress Test Models: A Survey](https://www.imf.org/en/publications/wp/issues/2023/08/25/macro-prudential-stress-test-models-a-survey-537990)

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## Bibliographic details
- Authors: David Aikman, Daniel Beale, Adam Brinley-Codd, Anne-Caroline Hüser, Giovanni Covi, Caterina Lepore
- Published: August 25, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400249921.001

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### Overview
- This paper surveys the rapidly developing literature on macroprudential stress-testing models.
- The paper's aims are two-fold:
  - to provide a reference guide of the state-of-the-art for those developing such models;
  - to distil insights from this endeavour for policy-makers using these models.

### Scope
- Includes models of:
  - contagion between banks;
  - contagion within the wider financial system including non-bank financial institutions such as investment funds;
  - models that emphasise the two-way interaction between the financial sector and the real economy.

### Modelling frontier: main challenges identified
- (a) our understanding of the potential for amplification in sectors of the non-bank financial system during periods of stress;
- (b) multi-sectoral models of the non-bank financial system to analyse the behaviour of the overall demand and supply of liquidity under stress;
- (c) stress testing models that incorporate comprehensive two-way interactions between the financial system and the real economy.

### Emerging lessons for policy-makers
- For a given-sized shock hitting the system, its eventual impact will depend on:
  - (a) the size of financial institutions' capital and liquidity buffers;
  - (b) the liquidation strategies financial institutions adopt when they need to raise cash;
  - (c) the topology of the financial network.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2023/08/25/macro-prudential-stress-test-models-a-survey-537990_