Devising macroeconomic partial scenario with maximum impact factor for stress testing of banking system

The present study is an empirical presentation of a procedure to devise a Macroeconomic Partial Scenario(s) with Maximum Impact Factor (MePSWMIF) for Stress Testing of a banking system. The researchers have applied Cross Impact Analysis (CIA) (Gordon and Helmer, 1966) as pioneer in the area of econometrics i.e. Stress testing of a banking system Kenneth Chao (2008). The researchers modified the CIA methodology by replacing Cross Impact Matrix (CIM) with a type of Variance Decomposition Matrix (VDM) to compute impact factors of macroeconomic variables to help devise MePSWMIF. These MePSWMIFs are dynamic in nature and their dynamicity is evident from their computations and graphics for different time spans and sizes. Bayesian Vector Auto regression (BVAR) Model with Minnesota priors and Gibbs Sampler technique has been applied with 10000 repetitions to compute the VDMs.