Macro-stress tests not suitable as early warning systems, says BIS paper
A Bank for International Settlements paper published on January 18 warns that macro-stress tests are ill-suited as early warning devices but can act as an effective crisis management and resolution tool.
Claudio Borio, Mathias Drehmann and Kostas Tsatsaronis, the paper's authors, review the state of the art in macro-stress testing, assessing its strengths and weaknesses. The authors note that while macro-stress tests failed spectacularly to detect vulnerabilities in the financial system ahead of
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