Macro Stress Testing with a Macroeconomic Credit Risk Model: Application to the French Manufacturing Sector

36 Pages Posted: 28 Aug 2010

See all articles by Sanvi Avouyi-Dovi

Sanvi Avouyi-Dovi

Banque de France; ICN Business School

Bardos Mireille

MB Consulting

Caroline Jardet

Banque de France

Ludovic Kendaoui

affiliation not provided to SSRN

Jeremy Moquet

Banque de France

Date Written: June 2009

Abstract

The aim of this paper is to build and estimate a macroeconomic model of credit risk for the French manufacturing sector. This model is based on Wilson's CreditPortfolioView model (1997a, 1997b); it enables us to simulate loss distributions for a credit portfolio for several macroeconomic scenarios. We implement two simulation procedures based on two assumptions relative to probabilities of default (PDs): in the first procedure, firms are assumed to have identical default probabilities; in the second, individual risk is taken into account. The empirical results indicate that these simulation procedures lead to quite different loss distributions. For instance, a negative one standard deviation shock on output leads to a maximum loss of 3.07% of the financial debt of the French manufacturing sector, with a probability of 99%, under the identical default probability hypothesis versus 2.61% with individual default probabilities.

Keywords: macro stress test, credit risk model, loss distribution

JEL Classification: G32, C22, C53

Suggested Citation

Avouyi-Dovi, Sanvi and Mireille, Bardos and Jardet, Caroline and Kendaoui, Ludovic and Moquet, Jeremy, Macro Stress Testing with a Macroeconomic Credit Risk Model: Application to the French Manufacturing Sector (June 2009). Banque de France Working Paper No. 238, Available at SSRN: https://ssrn.com/abstract=1666737 or http://dx.doi.org/10.2139/ssrn.1666737

Sanvi Avouyi-Dovi (Contact Author)

Banque de France ( email )

Paris
France

ICN Business School ( email )

13 rue du Marechal Ney
Nancy, 54000
France

Bardos Mireille

MB Consulting ( email )

225 S. Meramec Ave
Suite 621
St. Louis, MO 63105
United States

Caroline Jardet

Banque de France ( email )

31 rue croix des petits champs
75049 Paris Cedex 01
France

Ludovic Kendaoui

affiliation not provided to SSRN ( email )

Jeremy Moquet

Banque de France ( email )

Paris
France

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