Stress Testing as a Tool for Monitoring and Modelling the Dynamics of Business Activity of Manufacturing Enterprises in Russia in the Face of Market Shocks: Short-term Scenarios of Industry Tendencies

34 Pages Posted: 1 Jun 2020

See all articles by Inna Lola

Inna Lola

National Research University Higher School of Economics

Anton Manukov

National Research University Higher School of Economics

Murat Bakeev

National Research University Higher School of Economics

Date Written: May 27, 2020

Abstract

The article proposes a methodology for using macro-level stress testing based on the results of business tendency surveys to study possible scenarios for the development of crisis dynamics triggered by external unforeseen supply and demand shocks, as in the case of the COVID-19 pandemic, as well as a review of existing approaches in the field of stress testing and building stress indices with an emphasis on methods based on vector autoregressive models and their various modifications.
The basis for empirical calculations is data from business tendency surveys of the leaders of Russian manufacturing enterprises, reflecting their combined estimates of the current state of business activity. Based on the results of business tendency surveys, four composite indices were formed reflecting various aspects of business activity of enterprises: demand index, production index, finance index and employment index. Index values calculated monthly from 2008 to March 2020 were used to build the Bayesian vector autoregressive model (BVAR). This model was used to predict the dynamics of indices under the condition of four possible shock scenarios: short-term shock, V-shaped shock, W-shaped shock and U-shaped shock. Moreover, for each of the scenarios, cases of a shock of demand, a shock of production, and a simultaneous shock of demand and production were separately considered.
The results indicated the key role of demand in the dynamics of all the indices under consideration, the W-shaped shock, as the worst of the considered scenarios, as well as the relatively greater sensitivity of the employment index to the demand index and the finance index to the production index.

Keywords: stress testing, business tendency studies, scenario analysis, manufacturing, vector autoregressive model, Bayesian methods, digital Indicators, COVID-19.

JEL Classification: C32, E27, E37, G17

Suggested Citation

Lola, Inna and Manukov, Anton and Bakeev, Murat, Stress Testing as a Tool for Monitoring and Modelling the Dynamics of Business Activity of Manufacturing Enterprises in Russia in the Face of Market Shocks: Short-term Scenarios of Industry Tendencies (May 27, 2020). Higher School of Economics Research Paper No. WP BRP 108/STI/2020, Available at SSRN: https://ssrn.com/abstract=3612983 or http://dx.doi.org/10.2139/ssrn.3612983

Inna Lola (Contact Author)

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Anton Manukov

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Murat Bakeev

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
21
Abstract Views
173
PlumX Metrics