Macro-Financial Surveillance

The IMF course on <link http: www.jvi.org training course-schedule-2015 course external-link-new-window external link in new>Macro-Financial Surveillance, organized by the IMF’s Institute for Capacity Development (ICD), was held at the JVI during July 27 – August 7, 2015. The objective of this course is to learn sophisticated analytical tools for assessing macrofinancial linkages and conducting macrofinancial surveillance.

The course is quite advanced and technically challenging. Participants first learn methods for extracting information from asset prices. After a short introduction to the basics of asset pricing and interpreting financial data, the first module deals with the term structure of interest rates and yield curve analytics, reviewing theories of term structure and introducing the Nelson-Siegel model for estimating forward rates. The next module reviews methods for extracting probabilities of default from bond and credit default swap (CDS) spreads. The third module, dealing with equity markets, presents methods for estimating future economic growth based on equity price developments. The final module focuses on option prices: After an introductory lecture, contingent claims analysis is introduced: based on option theory, this type of analysis uses the Black-Scholes risk-neutral option pricing formula to estimate the probability of default for publicly listed companies. The first part of the course closes with a review of credit and market risk management models, especially those focused on Value at Risk (VaR).

The second part of the course deals with systemic risk. Its first module discusses the definition and sources of systemic risk, types of financial crises that constitute systemic events, and useful indicators of financial sector vulnerability, based mainly on credit and asset prices. It also reviews the Financial Soundness Indicators and explains the main steps in stress testing. The next module looks at systemic risk due to interlinkages in the financial system and asks participants to run scenarios of domino-type interbank contagion using a special Excel add-in. The final module presents methods for developing systemic risk measures and reviews several new techniques for macrofinancial surveillance, such as conditional VaR (CoVaR) or joint probabilities of distress.

In both parts of the course, all topics are presented through a combination of lecture and hands-on Excel-based workshop, in which participants apply the techniques presented in the lecture. Participants were also split into three groups and asked to apply one or two of the tools they learned in the course to either Sweden, Russia, or Hungary. As in other ICD courses, quizzes were conducted at both the beginning and the end of the course; the results indicated substantial learning progress.

The course closed with a guest lecture by Mr. Paul Hiebert, Deputy Head of the ECB Financial Stability Surveillance Division, who described the tools the ECB uses for macrofinancial surveillance. The teaching team also broadcast a video interview on the topic with Mr. Olivier Blanchard, former IMF chief economist.

In 2016, the two-week Macro-Financial Surveillance course is scheduled to be offered during July 25 – August 5, 2016. Those interested can check the <link http: www.jvi.org training course-schedule-2016 course external-link-new-window external link in new>course page and apply online.

Adam Gersl, Senior Economist, JVI