The one-sided credit-to-GDP gap -- measured as the difference between the level of private nonfinancial sector credit-to-GDP and its one-sided Hodrick-Prescott (HP) filtered trend (with λ=400,000) -- is a prominent variable in the decision-making framework proposed by the BCBS for the Basel III...

Unfavorable macroeconomic and financial scenarios are a core element of bank stress tests, and the degree to which variables deteriorate in a scenario--i.e., the scenario’s severity--is a central design feature of any stress test exercise