Macro Stress Testing: Preliminary Evidence For Pakistan
Author: Shahina Ahmed

This study focuses on macro stress testing in computing Pakistan banking sector’s financial sustainability by addressing two important questions. Initially, the prospective measure of vulnerabilities in financial institutions of the country should be identified? Secondly the proper way of calculating vulnerability of the financial institutions especially banks to possible risks .To get the required answers we need to produce a framework that will explain Pakistan‘s Banks exposure of stress testing credit risk. For this, we will go with the factual analysis which acquires Vector autoregressive (VAR) viewpoint to determine the correlation between certain macroeconomic indicators and from that macroeconomic scenarios are developed. With an intention to evaluate correlation among macroeconomic indicators and forecasting future trends Vector Auto regressive (VAR) model has been applied. Macroeconomic variables utilized here are Industrial production (IP), real effective Exchange rate (REXCH), Discount rate (DR) and Inflation rate (INF). Data for each variable has been taken on monthly basis from 2006 to 2018 from IFS, State bank of Pakistan (SBP), International monetary fund (IMF).For the time series data which is easily deal by Vector autoregressive model unit root test and lag length criteria test check the stationary of the data. Supervisor:- Dr. Ahsan Ul Haq Satti

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Supervisor: Ahsan ul Haq Satti

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