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A Peer-reviewed scientific articles/A1 Journal article (refereed), original research
      
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A comparative analysis of macro stress-testing methodologies with application to Finland, Journal of Financial Stability 2 ; June (2006). Sorge, Marco; Virolainen, Kimmo


Category A Peer-reviewed scientific articles
Sub-category A1 Journal article (refereed), original research
auki Internal authors
Virolainen Kimmo / General Secretariat
All authors as text Sorge, Marco; Virolainen, Kimmo 
Number of authors
Status Published
Year of publication 2006 
Date 15.06.2006 
Name of article A comparative analysis of macro stress-testing methodologies with application to Finland 
Name of journal Journal of Financial Stability
Volume of issue
Number of issue 2 ; June 
Pages 113-151 
Abstract This paper reviews the state-of-the-art of macro stress-testing methodologies. We assess the progress made both in the econometric analysis of balance sheet indicators and in the simulation of value-at-risk measures to assess system-wide vulnerabilities. To illustrate the main analytical approaches in the literature, we estimate two different models for stress-testing purposes using data for Finland over the time period from 1986 to 2003. The Finnish experience in the early 1990s appears particularly suited for macro stress-testing as it includes a severe recession with significantly higher-than-average default rates and banks’ loan losses. We highlight a number of methodological challenges that still remain concerning in particular the correlation of market and credit risks over time and across institutions, the limited time horizon generally used for macro stress-testing and the potential instability of reduced-form parameter estimates because of feedback effects.
Free text descriptor in Finnish stressitestaus; menetelmät; indikaattorit; pankit; Suomi 
Free text descriptor in English Macro stress-testing; Financial soundness indicators; Value at risk; Feedback effects 
JEL-codes G21; G10; E37 
ISSN / e-ISSN 1572-3089 
auki Internet addresses