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Macro Stress Testing for Indian Banking: VAR Approach

Sanjay Singh and S. Majumdar
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Sanjay Singh: Financial Stability Unit, Reserve Bank of India
S. Majumdar: Financial Stability Unit, Reserve Bank of India

Indian Economic Review, 2013, vol. 48, issue 2, 275-296

Abstract: A vast body of literature endorses the fact that the changes in the macroeconomic conditions of an economy do impact banks’ performance, simultaneously or with a lag. It is also possible that the feedback effects of bank instability on real economic activity could amplify the fluctuations especially during recessions. Therefore, in order to judge the resilience of banking to various macroeconomic shocks, macro stress test using Vector Autoregressive (VAR) approach has been adopted. Based on empirical results it is found that macroeconomic variables do have significant impact on banks’ stability.

Keywords: Macro Stress Testing; Slippage Ratio; VAR; Impulse Response Function (search for similar items in EconPapers)
JEL-codes: C32 E44 G21 (search for similar items in EconPapers)
Date: 2013
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Indian Economic Review is currently edited by Pami Dua (Editor) & Ram Singh (Associate Editor) and Sunil Kanwar

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