Forecast-Augmented Credit-to-GDP Gap as an Early Warning Indicator of Banking Crises

Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F00216208%3A11230%2F21%3A10438326" target="_blank" >RIV/00216208:11230/21:10438326 - isvavai.cz</a>
Result on the web
<a href="https://verso.is.cuni.cz/pub/verso.fpl?fname=obd_publikace_handle&handle=qfdoPtVh0g" target="_blank" >https://verso.is.cuni.cz/pub/verso.fpl?fname=obd_publikace_handle&handle=qfdoPtVh0g</a>
DOI - Digital Object Identifier
<a href="http://dx.doi.org/10.32065/CJEF.2021.04.04" target="_blank" >10.32065/CJEF.2021.04.04</a>

Result language
angličtina
Original language name
Forecast-Augmented Credit-to-GDP Gap as an Early Warning Indicator of Banking Crises
Original language description
This paper explores whether augmenting the credit-to-GDP series with a forecast improves the early warning property of the credit-to-GDP gap - a frequently used indicator of excessive credit expansions calculated using the one-sided Hodrick-Prescott filter. Improving the early warning property of this indicator is extremely important as policymakers frequently rely on it when deciding about macroprudential policy interventions such as when calibrating the Basel III countercyclical capital buffer or other macroprudential instruments. Using data for 56 countries over 1950-2016, we simulate in a quasi-real-time setting how different types of forecasts would have changed the gap. We build simple statistical forecasts, more complex economic forecasts based on regression models estimated in real-time with IMF country-specific WEO macro projections used as inputs, and plausible credit cycle corrections. The early warning power of alternative credit-to-GDP gaps is tested within the ROC/AUROC framework. Our results indicate that for advanced markets, none of the adjustments can beat the simple one-sided filter, but for emerging markets, the correction-adjusted gaps could improve the signalling power.
Czech name
—
Czech description
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Type
J<sub>imp</sub> - Article in a specialist periodical, which is included in the Web of Science database
CEP classification
—
OECD FORD branch
50201 - Economic Theory

Project
<a href="/en/project/GA18-05244S" target="_blank" >GA18-05244S: Innovative Approaches to Credit Risk Management</a><br>
Continuities
P - Projekt vyzkumu a vyvoje financovany z verejnych zdroju (s odkazem do CEP)

Publication year
2021
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů

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