How to Capture Macro-Financial Spillover Effects in Stress Tests?

Heiko Hesse, Ferhan Salman and Christian Schmieder

No 2014/103, IMF Working Papers from International Monetary Fund

Abstract: One of the challenges of financial stability analysis and bank stress testing is how to establish scenarios with meaningful macro-financial linkages, i.e., taking into account spillover effects and other forms of contagion. We come up with an approach to simulate the potential impact of spillover effects based on the “traditional” design of macro-economic stress tests. Specifically, we examine spillover effects observed during the financial crisis and simulate their impact on banks’ liquidity and capital positions. The outcome suggests that spillover effects have a highly non-linear impact on bank soundness, both in terms of liquidity and solvency.

Keywords: WP; bank; IMF liquidity stress; bank solvency; Macro-financial linkages; Stress testing; Scenarios; Spillover; Contagion; measures bank; spillover effect; bank level; bank reaction; solvency risk; Liquidity; Liquidity stress testing; Solvency; Solvency stress testing; Global (search for similar items in EconPapers)
Pages: 34
Date: 2014-06-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=41644 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2014/103

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().