Macro Stress Testing at the Bank of Japan

Tomiyuki Kitamura, Satoko Kojima, Koji Nakamura, Kojiro Takahashi and Ikuo Takei
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Tomiyuki Kitamura: Bank of Japan
Satoko Kojima: Bank of Japan
Koji Nakamura: Bank of Japan
Kojiro Takahashi: Bank of Japan

No 14-10-08, Bank of Japan Research Papers from Bank of Japan

Abstract: Since the global financial crisis, macro stress testing has attracted much attention in many countries as a method to evaluate potential risks of financial system. The Bank of Japan has conducted macro stress testing with various scenarios reflecting financial and economic conditions at each point in time, and published the results in the semi-annual Financial System Report. This paper explains the framework of macro stress testing reported in the Financial System Report. The framework has been improved over time to ensure it appropriately analyzes risk factors in Japan's financial system. Current notable features of the Bank's macro stress testing are as follows. First, it includes a mechanism reflecting the feedback loop between the financial and economic sectors by using the FMM, a medium-sized structural macro model comprising two sectors: financial and macroeconomic. Second, it can analyze not only aggregate figures such as capital adequacy ratios and net interest income, but also those for individual financial institutions.

Keywords: stress testing; macroprudential policy (search for similar items in EconPapers)
JEL-codes: E44 G21 (search for similar items in EconPapers)
Date: 2014-10-08
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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