Central Bank Stress Testing—Guidance Note

International Monetary Fund

No 2024/067, IMF Policy Papers from International Monetary Fund

Abstract: The expansion of central bank balance sheets has become a critical topic in the wake of the Global Financial Crisis and the COVID-19 pandemic. Central banks have taken unprecedented measures to ensure price stability and financial stability, particularly when traditional policy tools were insufficient. However, this expansion has led to significant balance sheet risks, resulting in notable losses as central banks have adjusted their policies in response to rising inflation. This guidance note explores these risks and introduces a modeling framework to assess them. While essential for achieving stability, the expansion of central bank balance sheets introduces significant risks that require careful management. The proposed modeling framework is a valuable tool for assessing these risks and guiding capital policy. Exploring the relationship between balance sheet size and economic outcomes could yield beneficial insights for future central bank strategies.

Keywords: Central bank; balance sheet; stress testing; balance sheet risk; central bank equity; forecasting balance sheet; central bank bank transfer; balance sheet action; central bank profit; Financial statements; Central bank policy rate; Central bank balance sheet; Yield curve; International reserves; Global (search for similar items in EconPapers)
Pages: 58
Date: 2024-12-23
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