Incorporating financial development indicators into early warning systems

Alexey Ponomarenko and Stas Tatarintsev

The Journal of Economic Asymmetries, 2023, vol. 27, issue C

Abstract: We set up an early warning system for financial crises based on the Random Forrest approach. We use a novel set of predictors that comprises financial development indicators in addition to conventional imbalances measures. The evaluation of the model is conducted using a three-step procedure (i.e. training, validation and testing sub-samples). The results indicate that combining financial imbalances and financial development indicators helps to improve the out-of-sample accuracy of the early warning system.

Keywords: Early warning indicators; Financial crisis; Financial development; Credit gap; Random forest (search for similar items in EconPapers)
JEL-codes: C40 C52 E44 G01 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: Incorporating financial development indicators into early warning systems (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:27:y:2023:i:c:s1703494922000445

DOI: 10.1016/j.jeca.2022.e00284

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