A BVAR toolkit to assess macrofinancial risks in Brazil and Mexico

Abstract

This paper describes the set of Bayesian vector autoregression (BVAR) models that Banco de España uses to project GDP growth rates and to simulate macrofinancial risk scenarios for Brazil and Mexico. The toolkit consists of large benchmark models to produce baseline projections and various smaller satellite models to conduct risk scenarios. We showcase the use of this modeling framework with tailored empirical applications. Given the material importance of Brazil and Mexico to the Spanish economy and banking system, this toolkit contributes to the monitoring of Spain’s international risk exposure.