We introduce the technique of worst case search to macro stress testing. Among the macroeconomic scenarios satisfying some plausibility constraint we determine the worst case scenario which causes the most harmful loss in loan portfolios. This method has three advantages over traditional macro stress testing: First, it ensures that no harmful scenarios are missed and therefore prevents a false illusion of safety which may result when considering only standard stress scenarios. Second, it does not analyse scenarios which are too implausible and would therefore jeopardize the credibility of stress analysis. Third, it allows for a portfolio specific identification of key risk factors. Another lesson from this paper relates to the use of partial stress scenarios specifying the values of some but not all risk factors: The plausibility of partial scenarios is maximised if we set the remaining risk factors to their conditional expected values.
Macro stress testing has become an important method of risk analysis for lending acitivities. This paper introduces the technique of worst case analysis to macro stress testing. Among the macroeconomic scenarios satisfying some plausibility constraint we determine the worst case scenario which causes the most harmful loss. In this way one can be sure not to miss out any harmful but plausible scenarios, which is a serious danger when considering only standard stress scenarios.
All right, so you're probably wondering what this "calorie-conscious" low carb stuff is all about. It's a hideous sounding combination of dieting ideas to some people, and you might just be looking for an excuse to toss this idea on the trash heap of bad ideas. But hear me out, please, before you do that.
Most low carb dieters follow a form of the low carb diet that says nothing aboutcounting calories. In fact many low carb diets promise that you won't have to count calories at all if you follow their plan.
Does fiscal decentralization lead to more efficient governance, better public goods, and higher economic growth? This paper tests hypotheses posed by theoretical literature that the results of decentralization depend on features of political institutions. Using data from up to 95 countries for 25 years, we show that the effect of decentralization on economic growth, quality of government, and public goods provision strongly depends on two aspects of political centralization: 1) strength of national party system (measured by the age of the main parties and fractionalization of the government parties) and 2) subordination (whether local and state executives are appointed or elected). We find solid support for Riker’s theory (1964) in developing countries: Strong parties significantly improve the results of fiscal decentralization in terms of economic growth, quality of government, and public goods provision. There is also some evidence that subordination of local to higher-level governments improves the effect of decentralization on growth and public goods provision (in developed and developing countries) and government quality (in developing countries).
Modern economic literature has little doubt that economic decentralization affects the quality of government, economic growth, and efficiency of public goods provision. The effect of decentralization depends on political and economic incentives of local public officials. Economic incentives that help to align politicians’ private interests with public goals are provided by such mechanisms as interjurisdictional competition (Tiebout, 1956; Qian and Roland, 1998; Maskin, Qian, and Xu, 1999) and fiscal autonomy (Jin et al., 1999; Qian and Weingast, 1997; and Zhuravskaya, 2000). Political incentives, i.e., local governments’ accountability, are provided by political institutions which ensure that careers of local politicians depend on whether they pursue efficient policies. In the absence of accountability, strong economic incentives at the local level may result in corruption, provincial protectionism, and capture by vested interests (Tanzi, 1996; Sonin, 2003).
