Spatial financeWhere capital meets hazard, exposure and transition
Econometrics for financial stability
Econometrics estimates relationships from data and tests whether they hold. On this platform it measures credit cycles, early warning indicators, spillovers and the effects of policy, with uncertainty and identification stated.
Econometrics applies statistical methods to economic data to estimate relationships, test theories and forecast. It provides empirical evidence on how shocks and policies affect economic outcomes. In financial stability, risk management and systemic risk and capital markets and investment, econometric evidence estimates how disasters, pandemics and financial shocks affect output, employment and prices. It informs the economic case for risk reduction. The canonical description is on the STEM Commons.
Early warning indicators
Credit gaps, asset price growth and debt service ratios are tested for their ability to signal crises, with false alarm and missed crisis rates reported.
Quantile regression for growth-at-risk
The distribution of future growth is estimated conditional on financial conditions, showing how downside risk changes.
Spillover estimation
Vector autoregressions and connectedness measures estimate how shocks in one market or country affect others.
03Stress test
How a shock to assets becomes a system loss.
The equity the system loses after interbank contagion, against the initial hit, as leverage, interconnection and recovery rates change, the core of a macroprudential stress test. Teaching model with stated illustrative values, not a prediction.
Controls
Fall in external assets
2.0%
Leverage (assets over equity)
10 times
Interbank share of assets
10%
Recovery on interbank claims
40%
Banks in the system
20
Core banks
20% of banks
Readouts
Equity lost to the initial shock
18.0%
Equity lost after contagion
45.0%
Added by contagion (DebtRank)
27.0 points
Banks in default
0
Numbers, methods and sources
Round
System equity lost (%)
Banks in default
0
18.00
0
1
28.80
0
2
35.28
0
3
39.17
0
4
41.50
0
5
42.90
0
6
43.74
0
7
44.24
0
8
44.55
0
9
44.73
0
10
44.84
0
11
44.90
0
12
44.94
0
13
44.96
0
14
44.98
0
15
44.99
0
16
44.99
0
17
45.00
0
18
45.00
0
19
45.00
0
20
45.00
0
21
45.00
0
22
45.00
0
23
45.00
0
24
45.00
0
25
45.00
0
26
45.00
0
27
45.00
0
28
45.00
0
29
45.00
0
30
45.00
0
Methods
DebtRank Battiston and others (2012), Scientific Reports 2:541
Differential DebtRank Bardoscia and others (2015), PLOS ONE 10
Contagion in financial networks Gai and Kapadia (2010), Proc. R. Soc. A 466
Clearing in financial networks Eisenberg and Noe (2001), Management Science 47
Uncertainty fan (parameter Monte Carlo) Spiegelhalter, Pearson and Short (2011), Visualising uncertainty about the future, Science 333
One-at-a-time sensitivity (tornado) Saltelli and others (2008), Global Sensitivity Analysis: The Primer, Wiley
Data
No observed data enters this model: it runs on the teaching values set by the controls, to be replaced with a programme's own evidence.
How a shock to assets becomes a system loss. Illustrative teaching model: it runs on the values set by the controls, not on measured data. Methods: DebtRank (Battiston and others (2012), Scientific Reports 2:541); Differential DebtRank (Bardoscia and others (2015), PLOS ONE 10); Contagion in financial networks (Gai and Kapadia (2010), Proc. R. Soc. A 466).
Datasets and records used by econometrics on this platform, with the role each plays and the label its values carry. Sources are listed in the source register.
Data
Role
Label
BIS credit statistics
Credit cycles
Published statistics
Financial conditions indices
Market stress
ESTIMATED
Crisis databases
Event dating
REPORTED
National accounts
Real activity
Published statistics
05Exposure, loss and capital
What econometrics for financial stability means for exposure, loss and capital.
The exposure, loss, scenario and capital views a risk officer, supervisor or ministry of finance would ask for, with the frameworks they report against. Structures follow supervisory and actuarial practice. Values are illustrative: never prices, ratings or advice.
Transmission channels
How a shock in econometrics for financial stability reaches credit, market, underwriting, liquidity and operational risk, and feeds back.
Channel structure after the Basel Committee's work on climate-related risk drivers and transmission channels; links shown are typical paths, not estimated exposures.
NGFS climate scenarios · Network for Greening the Financial SystemIFRS S2 Climate-related Disclosures · ISSBTCFD recommendations · Financial Stability Board TCFDPrinciples for the effective management of climate-related financial risks · Basel Committee on Banking Supervision
06Validation
How results are checked.
Models are assessed through specification tests, robustness checks and out-of-sample performance. Results are compared across datasets and methods.
Check
How it is done
Out-of-sample performance
Indicators are tested on periods not used to fit them
Robustness
Results are checked across specifications and samples
Signal-to-noise
False alarms are reported alongside correctly signalled crises
Endogeneity, measurement error and structural change can bias estimates. Relationships may shift under extreme conditions.
What are the limits of econometrics in this field?
Endogeneity, measurement error and structural change can bias estimates. Relationships may shift under extreme conditions.
How are results checked?
Models are assessed through specification tests, robustness checks and out-of-sample performance. Results are compared across datasets and methods.
Are the values on this page real?
The data names, roles and checks are real descriptions of practice. The canvas shows a design of the method's use, not a run; no result is reported here.
Reports is the Consortium's quarterly publication. What you know about this subject can become evidence, a case or a correction in the next edition, credited to you and published under CC BY 4.0 where it is your own work.
Global Risks AllianceFinancial StabilityScenario and Stress-TestGlobal Systems Risk and Resilience
Never send personal data, sensitive infrastructure detail or anything you have no right to share. A contribution is reviewed before use; sending it confers no authorship or editorial rights, and sponsorship never buys a finding.
Financial Stability
Bring an exposure or capital question to the Alliance.
Information and enquiries are open today. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.
Maps, data and figures on this site are shown for context and general information. They are not advice, forecasts or warnings; the limits of the information are set out in the Disclaimers and Data Notices.
Editors and the expert reviewers named on each article decide what we publish. Funders and partners do not review or approve articles before publication.
This site uses only strictly necessary cookies to work and to remember your privacy choices. Nothing loads from other companies, and we never sell or share your personal information.
Details
This site uses only strictly necessary cookies to work and to remember your privacy choices. Nothing loads from other companies, and we never sell or share your personal information. We run no advertising. You can review your choices at any time through Privacy choices at the foot of every page.