Research Discussion Papers, Bank of Finland
GDP at risk in a DSGE model: an application to banking sector stress testing
(), Juha Kilponen
() and Tero Kuusi
Abstract: We suggest a complementary tool for financial stability
analysis based on stochastic simulation of a dynamic stochastic general
equilibrium model (DSGE) of the macro economy. The paper relates to
financial stability research in which financial aggregates crucial to
financial stability are modelled as functions of macroeconomic variables.
In these models, stress tests for eg banking sector loan losses can be
generated by considering adverse scenarios of macro variables. A DSGE model
provides a systematic way of generating coherent macro scenarios which can
be given a rigorous economic interpretation. The approach is illustrated
using a DSGE model of the Finnish economy and a simple model of Finnish
banking sector loan losses.
Keywords: DSGE models; financial stability; loan losses; stress testing; (follow links to similar papers)
JEL-Codes: E13; E37; G21; G28; (follow links to similar papers)
27 pages, December 19, 2007
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