Policy Papers

Central Bank Stress Testing—Guidance Note

December 23, 2024

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Format: Chicago

International Monetary Fund. Monetary and Capital Markets Department "Central Bank Stress Testing—Guidance Note", Policy Papers 2024, 067 (2024), accessed December 24, 2024, https://doi.org/10.5089/9798400297779.007

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Summary

The expansion of central bank balance sheets has become a critical topic in the wake of the Global Financial Crisis and the COVID-19 pandemic. Central banks have taken unprecedented measures to ensure price stability and financial stability, particularly when traditional policy tools were insufficient. However, this expansion has led to significant balance sheet risks, resulting in notable losses as central banks have adjusted their policies in response to rising inflation. This guidance note explores these risks and introduces a modeling framework to assess them. While essential for achieving stability, the expansion of central bank balance sheets introduces significant risks that require careful management. The proposed modeling framework is a valuable tool for assessing these risks and guiding capital policy. Exploring the relationship between balance sheet size and economic outcomes could yield beneficial insights for future central bank strategies.

Subject: Central bank balance sheet, Central bank policy rate, Central Banks, Credit ratings, Financial sector policy and analysis, Financial services, Financial statements, Foreign exchange, International reserves, Monetary base, Money, Public financial management (PFM), Stress testing, Yield curve

Keywords: Balance sheet, Central bank, Central bank balance sheet, Central bank policy rate, Credit ratings, Exchange rate risk, Exchange rates, Financial statements, International reserves, Monetary base, Stress testing, Stress testing, Yield curve

Publication Details

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