Economic Extremes Are Putting the Spotlight on Model Overlays: Here’s A Primer

Since the onset of the COVID pandemic, extremes have become normal: extreme economic and market volatility triggered by widespread shutdowns, plunging employment, massive monetary and fiscal stimulus to compensate, rapid recovery in securities and labor markets, and now inflation and the prospect of a new monetary policy regime. For those in the financial industry who rely on models to produce reliable and useful estimates, these extreme conditions pose a problem: How can they be assured tha…