GDP at risk in a DSGE model: an application to banking sector stress testing
Esa Jokivuolle (),
Juha Kilponen () and
No 26/2007, Research Discussion Papers from Bank of Finland
We suggest a complementary tool for financial stability analysis based on stochastic simulation of a dynamic stochastic general equilibrium model (DSGE) of the macro economy. The paper relates to financial stability research in which financial aggregates crucial to financial stability are modelled as functions of macroeconomic variables. In these models, stress tests for eg banking sector loan losses can be generated by considering adverse scenarios of macro variables. A DSGE model provides a systematic way of generating coherent macro scenarios which can be given a rigorous economic interpretation. The approach is illustrated using a DSGE model of the Finnish economy and a simple model of Finnish banking sector loan losses. Keywords: DSGE models, financial stability, loan losses, stress testing JEL classification numbers: E13, E37, G21, G28
JEL-codes: E13 E37 G21 G28 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:bof:bofrdp:2007_026
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