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Systemic Real and Financial Risks; Measurement, Forecasting, and Stress Testing

Marcella Lucchetta () and Gianni De Nicolo

No 12/58, IMF Working Papers from International Monetary Fund

Abstract: This paper formulates a novel modeling framework that delivers: (a) forecasts of indicators of systemic real risk and systemic financial risk based on density forecasts of indicators of real activity and financial health; (b) stress-tests as measures of the dynamics of responses of systemic risk indicators to structural shocks identified by standard macroeconomic and banking theory. Using a large number of quarterly time series of the G-7 economies in 1980Q1-2010Q2, we show that the model exhibits significant out-of sample forecasting power for tail real and financial risk realizations, and that stress testing provides useful early warnings on the build-up of real and financial vulnerabilities.

Keywords: Economic indicators; Financial risk; Prices; Forecasting models; Group of seven; Time series; Systemic Risks, Dynamic Factor Model, Quantile Auto-regressions, Density Forecasts, forecasting, bank credit, banking, probability, Econometric Modeling, Business Fluctuations, And Cycles, financial Institutions And Services, (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-for and nep-rmg
Date: 2012-02-01
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