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Macro Stress Testing at the Bank of Japan

Author

Listed:
  • Tomiyuki Kitamura

    (Bank of Japan)

  • Satoko Kojima

    (Bank of Japan)

  • Koji Nakamura

    (Bank of Japan)

  • Kojiro Takahashi

    (Bank of Japan)

  • Ikuo Takei

    (Bank of Japan)

Abstract
Since the global financial crisis, macro stress testing has attracted much attention in many countries as a method to evaluate potential risks of financial system. The Bank of Japan has conducted macro stress testing with various scenarios reflecting financial and economic conditions at each point in time, and published the results in the semi-annual Financial System Report. This paper explains the framework of macro stress testing reported in the Financial System Report. The framework has been improved over time to ensure it appropriately analyzes risk factors in Japan's financial system. Current notable features of the Bank's macro stress testing are as follows. First, it includes a mechanism reflecting the feedback loop between the financial and economic sectors by using the FMM, a medium-sized structural macro model comprising two sectors: financial and macroeconomic. Second, it can analyze not only aggregate figures such as capital adequacy ratios and net interest income, but also those for individual financial institutions.

Suggested Citation

  • Tomiyuki Kitamura & Satoko Kojima & Koji Nakamura & Kojiro Takahashi & Ikuo Takei, 2014. "Macro Stress Testing at the Bank of Japan," Bank of Japan Research Papers 14-10-08, Bank of Japan.
    • Handle: RePEc:boj:bojron:ron141008a
    as

    Download full text from publisher

    File URL: http://www.boj.or.jp/en/research/brp/ron_2014/data/ron141008a.pdf
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    References listed on IDEAS

    as
    1. Ivan A. Canay, 2011. "A simple approach to quantile regression for panel data," Econometrics Journal, Royal Economic Society, vol. 14(3), pages 368-386, October.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Pierluigi Bologna & Anatoli Segura, 2017. "Integrating Stress Tests within the Basel III Capital Framework: A Macroprudentially Coherent Approach," Journal of Financial Regulation, Oxford University Press, vol. 3(2), pages 159-186.
    2. Claußen, Catharina & Platte, Daniel, 2023. "Evaluating the validity of regulatory interest rate risk measures – a simulation approach," Journal of Banking & Finance, Elsevier, vol. 154(C).
    3. Bank for International Settlements, 2016. "Experiences with the ex ante appraisal of macroprudential instruments," CGFS Papers, Bank for International Settlements, number 56, december.
    4. Budnik, Katarzyna & Ponte Marques, Aurea & Giglio, Carla & Grassi, Alberto & Durrani, Agha & Figueres, Juan Manuel & Konietschke, Paul & Le Grand, Catherine & Metzler, Julian & Población García, Franc, 2024. "Advancements in stress-testing methodologies for financial stability applications," Occasional Paper Series 348, European Central Bank.
    5. Pami Dua & Hema Kapur, 2017. "Macro Stress Testing of Indian Bank Groups," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 11(4), pages 375-403, November.
    6. Dua, Pami & Kapur, Hema, 2018. "Macro stress testing and resilience assessment of Indian banking," Journal of Policy Modeling, Elsevier, vol. 40(2), pages 452-475.
    7. Anthony Brassil & Mike Major & Peter Rickards, 2022. "MARTIN Gets a Bank Account: Adding a Banking Sector to the RBA's Macroeconometric Model," RBA Research Discussion Papers rdp2022-01, Reserve Bank of Australia.
    8. Naohisa Hirakata & Kazutoshi Kan & Akihiro Kanafuji & Yosuke Kido & Yui Kishaba & Tomonori Murakoshi & Takeshi Shinohara, 2019. "The Quarterly Japanese Economic Model (Q-JEM): 2019 version," Bank of Japan Working Paper Series 19-E-7, Bank of Japan.
    9. Mr. Dimitri G Demekas, 2015. "Designing Effective Macroprudential Stress Tests: Progress So Far and the Way Forward," IMF Working Papers 2015/146, International Monetary Fund.

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    More about this item

    Keywords

    stress testing; macroprudential policy;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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