Europe's "stress tests" were intended to gauge the ability of large banks to weather an economic storm. But the exams relied on some surprisingly docile economic assumptions.
In some of the 20 countries that conducted the tests, regulators figured that property values would keep rising or hold steady in a worst-case economic scenario.
In other cases, unemployment rates in a double-dip recession crept up by as little as 0.1 percentage point from the tests' so-called benchmark scenario, which is based on current economic conditions.
In Austria, for instance, the recession scenario involved house prices rising two percent the first year and rising 2.7 percent the year after. Here is further information. What would a rational Bayesian say? What would Will Wilkinson say? – "My kingdom for a futarchy!"
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