Thanks for helpful comments and suggestions to Martin Cihak, Tonny Lybek, Winston Moore, Miguel Segoviano, Kal Wajid, and participants in seminars at the IMF and the Central Bank of Barbados. Responsibility for the views and conclusions rests solely with the author.
The approach is also applicable to other scenario writing exercises, such as those frequently conducted for debt and current account sustainability analysis. My thanks to Winston Moore of the University of the West Indies for this observation.
The calculations were done without taking account of accumulated profits, in order to simplify the exposition, but in practice they could easily be incorporated into the analysis.
i.e., no account is taken of the possible impact of current period net earnings which, if positive, could cushion the impact on the CAR.