Summary:
One of the many lessons learned from the financial crisis is the increased awareness of model risk. In this article, I apply the best practices of model risk management found in SR 11-7 (which offers regulatory guidance on the best practices for managing model risk) to COVID-19 models. In particular, I investigate the Institute of Health Metrics and Evaluation's (IHME) model to see if it has been effectively challenged with a critical assessment of its conceptual soundness, ongoing monitoring, and outcomes analysis.
Key findings:
- Open source COVID-19 models and public data lend themselves to independent and well-informed model validation.
- Effective challenge of the IHME model has improved it and is helping to inform key stakeholders of the model’s intended use and limitations.
Center Affiliation Center for Financial Innovation and Stability
JEL classification: C1, C11, C52
Key words: COVID-19, model risk management, SR 11-7
https://doi.org/10.29338/ph2020-07
The Federal Reserve Bank of Atlanta's Policy Hub leverages the expertise of Atlanta Fed economists and researchers to address issues of broad policy interest. Our research centers coordinate this work and seek to influence policy discussions. Areas of interest include: forecasting, fiscal policy, and macroeconomics (Center for Quantitative Economic Research); financial stability, innovation, and regulation (Center for Financial Innovation and Stability); human capital, labor markets, health, and education (Center for Human Capital Studies); and government-sponsored entity reform, mortgage markets, and affordable housing (Center for Housing and Policy). Sign up for email updates. Under "Publications" select "Policy Hub."