Alternative frameworks for measuring credit gaps and setting countercyclical capital buffers

Nicolas Reigl () and Lenno Uusküla

No wp2018-07, Bank of Estonia Working Papers from Bank of Estonia

Abstract: This paper complements the standard Basel countercyclical capital buffer framework by suggesting four additional measures for credit gaps that can be used to measure the financial cycle and to decide on countercyclical capital buffers for banks. The new measures behave similarly to the gaps calculated with the standard Basel one-sided Hodrick-Prescott filter in long samples, but they have the properties desired for countries with relatively short historical samples. While the standard Basel credit gaps have been deep in negative territory for many European Union countries since the Great Recession the new gaps are close to zero and the buffers suggested are more in line with the countercyclical capital buffer ratios that were in place in 2018.

Keywords: credit gaps; countercyclical capital buffer; Basel III; Estonia (search for similar items in EconPapers)
JEL-codes: E59 G01 (search for similar items in EconPapers)
Date: 2019-01-23, Revised 2019-01-23
New Economics Papers: this item is included in nep-ban and nep-mac
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http://dx.doi.org/10.23656/25045520/072018/0159 (application/pdf)

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Journal Article: Alternative frameworks for measuring credit gaps and setting countercyclical capital buffers (2021)
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