Global | A vector autoregressive model for banking stress testing

We describe the Risk-GVAR 1.0, a Global Vector Autoregressive (GVAR) macroeconometric model designed to lend support to the internal stress testing exercises that banks, complying with prudential regulations, perform periodically to assess the adequacy of their current levels of capital.

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• Key points:
• Additionally, it provides arguments justifying both the convenience of relying on macroeconometric models in this context and the specific choice of a GVAR.
• The document presents a schematic description of the typical design and generation process of an adverse macroeconomic scenario of global scope for stress testing purposes, highlighting the stage where the support of a global macroeconometric model is most needed.
• There is also a section explaining in detail the nature of a GVAR model by clarifying its relationship with the highly standard and popular Vector Autoregressive Model (VAR).

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