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

41 Pages Posted: 25 Mar 2012

See all articles by Gianni De Nicoló

Gianni De Nicoló

affiliation not provided to SSRN

Marcella Lucchetta

Ca Foscari University of Venice

Date Written: February 2012

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: Systemic Risks, Dynamic Factor Model, Quantile Auto-regressions, Density Forecasts, Economic Indicators, Financial Risk, Forecasting Models, Group Of Seven, Econometric Modeling, Prices, Business Fluctuations, And Cycles,financial Institutions And Services

Suggested Citation

De Nicoló, Gianni and Lucchetta, Marcella, Systemic Real and Financial Risks: Measurement, Forecasting, and Stress Testing (February 2012). IMF Working Paper No. NO.12/58, Available at SSRN: https://ssrn.com/abstract=2028234

Gianni De Nicoló (Contact Author)

affiliation not provided to SSRN

No Address Available

Marcella Lucchetta

Ca Foscari University of Venice ( email )

Venice
Italy

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