BIS working paper assessing strengths and weaknesses of macro stress testing
Bank for International Settlements working paper reviewing state of the art in macro stress testing, and assessing its strengths and weaknesses. Argues that, given current technology, macro stress tests are ill-suited as early warning devices, i.e. as tools for identifying vulnerabilities during seemingly tranquil times and for triggering remedial action. By contrast, as long as properly designed, stress tests can be quite effective as crisis management and resolution tools. Identifies additional side benefits, stemming largely from the way such tests can discipline thinking about financial stability and suggests ways to improve their performance.
Publisher:
International Organizations
Release date:
Dec 2011
Type:
Consultative, discussion and issues paper
Topics:
Stress-testing, Macroprudential, Crisis management and contingency planning
Sectors:
Banking
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