Stress-Testing Macro Stress Testing: Does it Live Up to Expectations?

28 Pages Posted: 24 Feb 2012

See all articles by Claudio E. V. Borio

Claudio E. V. Borio

Bank for International Settlements (BIS) - Research and Policy Analysis

Mathias Drehmann

Bank for International Settlements (BIS)

Kostas Tsatsaronis

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: January 1, 2012

Abstract

We critically review the state of the art in macro stress testing, assessing its strengths and weaknesses. We argue that, given current technology, macro stress tests are ill-suited as early warning devices, ie 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. We also see additional side benefits, stemming largely from the way such tests can discipline thinking about financial stability. We suggest possible ways to improve their performance.

Keywords: stress tests, financial instability, macroprudential

JEL Classification: E30, E44, G10, G20, G28

Suggested Citation

Borio, Claudio E.V. and Drehmann, Mathias and Tsatsaronis, Konstantinos, Stress-Testing Macro Stress Testing: Does it Live Up to Expectations? (January 1, 2012). BIS Working Paper No. 369, Available at SSRN: https://ssrn.com/abstract=2006488

Claudio E.V. Borio (Contact Author)

Bank for International Settlements (BIS) - Research and Policy Analysis ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Mathias Drehmann

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Konstantinos Tsatsaronis

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland
(41 61) 280 8082 (Phone)
(41 61) 280 9100 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
325
Abstract Views
2,017
rank
103,639
PlumX Metrics