Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/280581 
Authors: 
Year of Publication: 
2018
Series/Report no.: 
AEI Economics Working Paper No. 2018-04
Publisher: 
American Enterprise Institute (AEI), Washington, DC
Abstract: 
Multi-year forecasts of bank performance under stressful economic conditions determine large institution regulatory capital requirements and yet the accuracy of these forecasts is undocumented. I compare the accuracies of alternative stress test model forecasts using the financial crisis as the stress scenario. Models include specifications that mimic the Federal Reserve CLASS model and alternatives that use Lasso, the AIC and an abridged set of explanatory variables. A simple single-equation Lasso model has, by far, the best forecast accuracy. Large differences in model forecast accuracy are undetectable from estimation sample statistics highlighting the need for new stress test model evaluation methods.
Subjects: 
Dodd-Frank Act
federal reserve
Bank regulation
stress tests
JEL: 
A
Document Type: 
Working Paper

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