How to Assess Country Risk: The Vulnerability Exercise Approach Using Machine Learning
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Summary:
The IMF’s Vulnerability Exercise (VE) is a cross-country exercise that identifies country-specific near-term macroeconomic risks. As a key element of the Fund’s broader risk architecture, the VE is a bottom-up, multi-sectoral approach to risk assessments for all IMF member countries. The VE modeling toolkit is regularly updated in response to global economic developments and the latest modeling innovations. The new generation of VE models presented here leverages machine-learning algorithms. The models can better capture interactions between different parts of the economy and non-linear relationships that are not well measured in ”normal times.” The performance of machine-learning-based models is evaluated against more conventional models in a horse-race format. The paper also presents direct, transparent methods for communicating model results.
Series:
Technical Notes and Manuals No. 2021/003
Subject:
Balance of payments Banking crises Early warning systems Expenditure Financial crises Global financial crisis of 2008-2009 Revenue administration Sudden stops
Frequency:
occasional
English
Publication Date:
May 7, 2021
ISBN/ISSN:
9781513574219/2075-8669
Stock No:
TNMEA2021003
Pages:
66
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