Financial Cycles – Early Warning Indicators of Banking Crises?

Sally Chen and Katsiaryna Svirydzenka

No 2021/116, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: equity price cycle; property price cycle; banking crisis; BIS-definition credit cycle; C. cycle property; Financial cycles; Banking crises; Credit; Land prices; Business cycles; Global (search for similar items in EconPapers)
Pages: 79
Date: 2021-04-29
New Economics Papers: this item is included in nep-cwa, nep-fdg and nep-mac
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