Stress Testing of the Central Bank of Costa Rica: Risk Assessment of Fixed-Income Instruments

Adriana Corrales-Quesada (), Fabio Gómez-Rodríguez and Carlos Segura-Rodriguez ()
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Adriana Corrales-Quesada: Economic Division, Central Bank of Costa Rica
Carlos Segura-Rodriguez: Department of Economic Research, Central Bank of Costa Rica

No 2401, Notas Técnicas from Banco Central de Costa Rica

Abstract: This technical note describes the procedure currently used by the Central Bank of Costa Rica (BCCR, by its initials in Spanish) to conduct stress tests on the portfolios of financial entities. The analysis identified two opportunities for improvement compared to the current practice; a procedure that was implemented as part of a technical assistance provided by the IMF. First, the stress tests are calculated based on the estimation of the PAR yield curves in colones and dollars carried out by the BCCR, which better reflect the behavior of the Costa Rican market. Secondly, resampling methods are used to determine the loss distribution based on available data, rather than using only predefined shocks, which facilitates the comparison of the predefined shocks currently used with the actual observed events. In conclusion, it is recommended to implement these two improvements in the execution of the stress tests.

Keywords: Stress Tests; Yield Curve Estimation; Financial Crisis; Pruebas de tensión; Curvas de rendimiento; Crisis financieras (search for similar items in EconPapers)
JEL-codes: C63 G21 G28 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2024-02
New Economics Papers: this item is included in nep-cba
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Persistent link: https://EconPapers.repec.org/RePEc:apk:nottec:2401

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