Macro stress testing with a macroeconomic credit risk model: Application to the French manufacturing sector

Avouyi-Dovi, S., M. Bardos, C. Jardet, L. Kendaoui and J. Moquet

Documents de Travail from Banque de France

Abstract: The aim of this paper is to build and estimate a macroeconomic model of credit risk for the French manufacturing sector. This model is based on Wilson's CreditPortfolioView model (1997a, 1997b); it enables us to simulate loss distributions for a credit portfolio for several macroeconomic scenarios. We implement two simulation procedures based on two assumptions relative to probabilities of default (PDs): in the first procedure, firms are assumed to have identical default probabilities; in the second, individual risk is taken into account. The empirical results indicate that these simulation procedures lead to quite different loss distributions. For instance, a negative one standard deviation shock on output leads to a maximum loss of 3.07% of the financial debt of the French manufacturing sector, with a probability of 99%, under the identical default probability hypothesis versus 2.61% with individual default probabilities.

Keywords: macro stress test; credit risk model; loss distribution. (search for similar items in EconPapers)
JEL-codes: G32 C22 C53 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-eec, nep-mac and nep-rmg
Date: 2009
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Persistent link: http://EconPapers.repec.org/RePEc:bfr:banfra:238

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