Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212084 
Year of Publication: 
2007
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 26/2007
Publisher: 
Bank of Finland, Helsinki
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.
Subjects: 
DSGE models
financial stability
loan losses
stress testing
JEL: 
E13
E37
G21
G28
Persistent Identifier of the first edition: 
ISBN: 
978-952-462-401-5
Document Type: 
Working Paper

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