Financial Sector Projections and Stress Testing in Financial Programming: A New Framework

29 Pages Posted: 23 Mar 2006

See all articles by Ritu Basu

Ritu Basu

International Monetary Fund (IMF)

Nada Choueiri

International Monetary Fund (IMF) - Research Department

Antonio I. Garcia Pascual

International Monetary Fund (IMF) - Western Hemisphere Department; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 2006

Abstract

This paper proposes a framework to check for consistency between the IMF's standard country surveillance tool, namely medium-term projections of the macroeconomic framework (including the real, fiscal, external, and monetary sectors), and the financial sector. Consistency here entails that the financial sector remain solvent in the medium term under the assumptions of the macroeconomic framework and that the macroeconomic framework is fine-tuned should threats to financial sector solvency arise as a result of assumptions underlying the medium-term macroeconomic framework projections. The proposed framework can also be used to conduct sensitivity analysis of the aggregated financial sector to various types of risks, including foreign exchange, interest rate, and credit risk. For surveillance purposes, this framework can easily be integrated into one of the standard sectoral files so that any update to the macroeconomic framework automatically feeds into the financial sector medium-term projections. We anticipate the proposed framework to be of interest to IMF economists as well as outside analysts.

Keywords: Financial Programming, Financial Institutions, Stress Testing

JEL Classification: E60, G20, G21

Suggested Citation

Basu, Ritu and Choueiri, Nada and Garcia Pascual, Antonio I., Financial Sector Projections and Stress Testing in Financial Programming: A New Framework (January 2006). IMF Working Paper No. 06/33, Available at SSRN: https://ssrn.com/abstract=892924

Ritu Basu (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Nada Choueiri

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Antonio I. Garcia Pascual

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

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