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Market Insight - Introducing Macroeconomic-Based Stress Testing - December 2013

From quantitative easing to talk of tapering, a recurrent theme of 2013 among investors has been concern over rising interest rates. There are many ways to design a rising interest rate stress test,though basing this on history alone is a challenge. Historically, interest rates have risen for numerous reasons: central bank actions, inflation, flight to quality, and so on. The commonality between past regimes of rising interest rates is not obvious. In order to simplify and use a direct link to a particular macro effect, we consider this problem through the lens of the MSCI Macroeconomic model.