Systemwide Liquidity Stress Testing Tool

Hiroko Oura

No 2022/252, IMF Working Papers from International Monetary Fund

Abstract: Developing a systemic liquidity stress testing tool is challenging due to data constraints and hard-to-model behavioral factors. There has yet to be a uniformly accepted model partly because the nature of systemic liquidity risks differs significantly across countries. This paper offers a simple Excel-based tool to assess the high-level impact of aggregate liquidity stress on the whole economy and gauge its spillover across banks, non-bank financial institutions (NBFIs), and non-financial economic sectors. It primarily uses the balance sheet approach (BSA) data—a sector-aggregate matrix of financial exposure by counterpart—that have become increasingly available for various economies with all income levels. The results can identify systemically important financial linkages to be analyzed further and help calibrate macroprudential measures and a liquidity support framework. When liquidity stress stems from capital outflows, the tool can enrich policy discussion based on integrated policy framework (IPF) and international reserve adequacy perspectives.

Keywords: Systemic liquidity; NBFIs; stress test; integrated policy framework; capital flow; international reserve adequacy; interconnectedness; balance sheet approach; macroprudential policy; financial stability; central bank FX liquidity buffer; cashflow liquidity stress test; liquidity support framework; systemwide liquidity risk; central bank liquidity provision; Liquidity; Liquidity stress testing; International reserves; Stress testing; Global (search for similar items in EconPapers)
Pages: 54
Date: 2022-12-16
New Economics Papers: this item is included in nep-ban and nep-cba
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