A Filtered Historical Simulation Approach to Macroeconomic Scenario Analysis

Abstract

This paper applies a filtered historical simulation (FHS) approach to macroeconomic scenario generation. The aim of the approach is to generate more plausible macroeconomic scenarios than other macroeconomic scenario models such as the global vector autoregression (GVAR) model. This paper shows how to handle the relation between macroeconomic statistics and financial market factors in a filtered historical simulation approach. The application fields of the approach are integrated risk management, stress testing, business planning and so on.