Rating momentum in the macroeconomic stress testing and scenario analysis of credit risk

Considering multi-horizon macroeconomic credit loss projection models in stress testing and impairments, a challenging question is how, under stressed and best estimate economic projections, different model assumptions can affect such projections. A recent publication by Jimmy Skoglund and Wei Chen accepted on Journal of Risk Model Validation¬†reveals that models that do take into account the stylized fact of rating momentum …