The OFR released a working paper today entitled, "Dynamical Macroprudential Stress Testing Using Network Theory." This paper presents a dynamic bipartite network model to stress test a banking system's sensitivity to external shocks in individual asset classes. As a case study, the authors apply the model to investigate the Venezuelan banking system from 1998 to 2013. The model quantifies the sensitivity of bank portfolios to different shock scenarios and identifies systemic vulnerabilities that stem from connectivity and network effects, and their time evolution. As such, the model provides a framework for dynamical macroprudential stress testing.
The brief is posted at: http://financialresearch.gov/working-papers/
The OFR home page is at: www.financialresearch.gov