Authors

Rhys Bidder

Andrew McKenna

Download PDF
(794 KB)

2015-13 | September 1, 2015

Despite the general consensus that stress testing has been useful in financial and macro-prudential regulation, test techniques are still being debated. This paper proposes using robust forecasting analysis to construct adverse scenarios using a benchmark model that includes a modified worst-case distribution. These scenarios give regulators a way to identify vulnerabilities, while acknowledging that models may be misspecified in unknown ways.