Finance and Economics Discussion Series
Sub-Title:
Can MacRo Variables Used in Stress Testing Forecast the Performance of BanksAuthor:
Luca Guerrieri and Michelle WelchPublisher:
BiblioBazaarImprint:
BiblioGovPublication Date:
02-01-2013ISBN:
9781288699186Pages:
34Available as:
Paperback, 9781288699186Description:
When stress tests for the banking sector use a macroeconomic scenario, an unstated premise is that macro variables should be useful factors in forecasting the performance of banks. We assess whether variables such as the ones included in stress tests for U.S. bank holding companies help improve out of sample forecasts of chargeoffs on loans, revenues, and capital measures, relative to forecasting models that exclude a role for macro factors. Using only public data on bank performance, we find the macro variables helpful, but not for all measures. Moreover, even our best-performing models imply bands of uncertainty around the forecasts so large as to make it challenging to distinguish the implications of alternative macro scenarios.
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