IMF: financial stress distorts losses in defaults
An IMF paper, published on 1 August, shows inaccurate measurements of probability default at large institutions could lead to misguided policy responses.
Manmohan Singh and Karim Youssef, the paper's authors, say that probability of default measures have been widely used in estimating potential losses and contagion among large financial institutions. In a period of financial stress, however, the existing methods may yield accurate results.
The authors discuss three issues that should be taken
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