Standard Stress Scenarios



Baseline forecasts and alternative scenarios for more than 50 countries, updated monthly, for evaluating shocks and differing assumptions.

Moody's Analytics scenarios are the foundation of stress testing and "what if?" analysis for risk management, compliance and strategic planning needs. Clients from a broad range of industries can use our scenarios to test the impact of shocks and differing economic assumptions on their businesses and portfolios. Scenarios are produced and maintained by a team of more than 80 experienced economists. 

Methodology

Our scenario-driven approach to forecasting begins with our baseline forecast. We define this as the “most likely outcome” based on current conditions and our view of where the economy is headed.  We then develop the basic outlines of our alternative scenarios by running multiple simulations to develop a probability distribution of economic outcomes. From this, we produce fully-fledged economic scenarios:

  • S1 - Stronger Near-Term Rebound
  • BL - Baseline Forecast
  • S2 - Slower Near-Term Recovery
  • S3 - Moderate Recession
  • S4 - Protracted Slump
  • S5 - Below-Trend Long-Term Growth
  • S6 - Stagflation
  • S7 - Next-Cycle Recession (US Only)
  • S8 - Low Oil Price
  • CS - Constant Severity (Independent of current business cycle)
  • CBL - Consensus Baseline (US Only)

Some of scenarios are cyclical, extending only through the current business cycle, with no change in the economy’s long-run growth rate. Others are longer term, with different long-run growth rates compared to the baseline.  We provide an economic narrative for each scenario, explaining what would cause the change in the outlook relative to the baseline. That story changes over time as underlying economic conditions change. Our approach consists of:

  • Dynamic systems of equations representing the components of aggregate demand and supply.
  • Quarterly or monthly re-estimation of equations for model robustness and forecasting accuracy.
  • Time-series and panel-data econometric techniques brought forward into the estimation process.
  • Monte Carlo simulations to generate deviations from our median/baseline forecast and to produce empirical probability distributions.

Applications

  • Business Planning
    Strategically plan for potential economic outcomes on the performance of your portfolios.
  • Compliance
    Meet CCAR/DFAST, EBA/PRA and IFRS 9/CECL compliance requirements with fully documented scenarios.
  • Risk Management
    Expose potential vulnerabilities to mitigate risk more effectively.
  • Stress-Testing
    Run comprehensive stress-tests for credit, market, liquidity and other risks.
  • Validation and Testing
    Test internal models under different scenarios to validate results and assumptions.

Benefits

  • Accuracy
    Analyze with confidence using trusted scenarios produced and maintained by a team of more than 80 economists.
  • Timeliness
    Account for the most recent data and expectations with monthly scenario updates.
  • Depth
    Take advantage of scenarios that include a comprehensive set of economic indicators, covering all relevant concepts.
  • Transparency
    Fully understand underlying assumptions for each scenario with documented narratives and access to economists.
  • Efficiency
    Quickly incorporate our off-the-shelf scenarios into your processes.

Key Features

  • Baseline forecast and stress scenarios for more than 50 countries, including the US and all states and metropolitan areas.
  • Coverage of more than 1,800 detailed economic variables.
  • Monthly updates accounting for the latest data and expectations.
  • Narratives for each scenario detailing the assumptions.
  • 30-year forecast horizon.

Offerings With Alternative Scenarios

All products listed below have packaged options that offer scenarios. Please contact us for any specialized requests.