Systemic analysis framework for the impact of economic and financial risks

Abstract

This paper presents the Banco de España’s reference framework for the analysis of macroeconomic and financial risk, and the impact of the materialisation of this risk on financial stability and the real economy. The framework encompasses a broad set of empirical and theoretical models and methods, with the aim of capturing heterogeneity in the characteristics of different sources of risk. In particular, the paper describes how these models are used to identify the impact of endogenous sources of risk, such as the build-up of macro-financial imbalances over the cycle, and of exogenous shocks. Regarding the latter, the paper presents an application of the models to the main exogenous events that have occurred recently: the COVID-19 pandemic, including the fiscal, monetary and prudential measures adopted as a response to this shock; the Russian invasion of Ukraine; and the subsequent high inflation and economic uncertainty environment.