Policy Papers

Central Bank Stress Testing—Guidance Note

December 23, 2024

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International Monetary Fund. Monetary and Capital Markets Department "Central Bank Stress Testing—Guidance Note", Policy Papers 2024, 067 (2024), accessed February 14, 2025, https://0-doi-org.library.svsu.edu/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, Financial services, Financial statements, International reserves, Public financial management (PFM), Yield curve

Keywords: Balance sheet, Balance sheet action, Balance sheet risk, Central bank, Central bank balance sheet, Central bank bank transfer, Central bank equity, Central bank policy rate, Central bank profit, Financial statements, Forecasting balance sheet, Global, International reserves, Stress testing, Yield curve

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