What should we do about (Macro) Pru? Macro Prudential Policy and Credit

Ray Barrell and Dilruba Karim

FMG Special Papers from Financial Markets Group

Abstract: Credit growth is widely used as an indicator of potential financial stress, and it plays a role in the new Basel III framework. However, it is not clear how good an indicator it is in markets that have been financially liberalised. We take a sample of 14 OECD countries and 14 Latin American and East Asian countries and investigate early warning systems for crises in the post Bretton Woods period. We show that there is a limited role for credit in an early warning system, and hence little reason for the Basel III structure. We argue that the choice of model for predicting crises depends upon both statistical criteria and on the use to which the model is to be put.

Date: 2012
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:fmg:fmgsps:sp217

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