Models need longer datasets to handle economic cycles – research

Decades, not years, of credit losses required for accurate risk modelling, argues expert

Data

Macroeconomic models used for forecasting and stress-testing frequently rely on too-short datasets, and should be backtested against much longer sets of economic data – measured not in months or years but in economic cycles, according to upcoming research.

In a paper due to be published in the Journal of Risk Model Validation in 2020, Joseph Breeden argues risk modellers use methods that often underestimate the level of correlation in data. The higher the correlation, the less useful the

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