CREDIT-TO-GDP GAP COMPUTATION UNDER MULTIVARIATE HP FILTER METHODOLOGY: THE CASE OF NORTH MACEDONIA

Magdalena Petrovska, Artan Sulejmani and Elena Mucheva Mihajlovska
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Magdalena Petrovska: National Bank of the Republic of North Macedonia.
Artan Sulejmani: National Bank of the Republic of North Macedonia.
Elena Mucheva Mihajlovska: National Bank of the Republic of North Macedonia.

UTMS Journal of Economics, 2025, vol. 16, issue 2, 142-162

Abstract: Unsustainable credit growth can signal systemic financial stress, potentially leading to crises and real-sector losses. The key gauges of over heatedness in the credit markets are the build-up of the credit-to-GDP ratio and its deviation from its long-term trend, the credit-to-GDP gap. When calculating the latter, the major methodological challenge is to develop a model capable of executing the most reliable trend-cycle decomposition. This study employs a multivariate Hodrick-Prescott (MVHP) approach that incorporates economic information in the trend extraction process. Our MVHP estimates suggest that the cyclical credit gap is relatively small in North Macedonia. This means that credit is generally growing close to its trend rate. The two-sided HP filter yields consistent results for the credit-to-GDP gap, while the one-sided version behaves unreliably, especially post-GFC. Given weak theoretical foundations, any gap measure should be viewed as a proxy.

Keywords: early warning indicators; excessive credit growth; financial stability; credit-to-GDP gap; multivariate HP filter; countercyclical capital buffer (search for similar items in EconPapers)
JEL-codes: E37 E44 E61 G01 G17 G21 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ris:utmsje:022221

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