Financial Cycles – Early Warning Indicators of Banking Crises?
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Summary:
Can the upturns and downturns in financial variables serve as early warning indicators of banking crises? Using data from 59 advanced and emerging economies, we show that financial overheating can be detected in real time. Equity prices and output gap are the best leading indicators in advanced markets; in emerging markets, these are equity and property prices and credit gap. Moreover, aggregating this information flags financial crisis many years before the crisis. Lastly, we find that the length of financial cycles is of medium-term frequency, calling into question the longer frequency widely used in the estimation of countercyclical capital buffers.
Series:
Working Paper No. 2021/116
Subject:
Banking crises Business cycles Credit Economic growth Financial crises Financial cycles Financial sector policy and analysis Land prices Money Prices
Frequency:
regular
English
Publication Date:
April 29, 2021
ISBN/ISSN:
9781513582306/1018-5941
Stock No:
WPIEA2021116
Pages:
79
Please address any questions about this title to publications@imf.org