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Determination of the Current Phase of the Credit Cycle in Emerging Markets

Elena Deryugina and Alexey Ponomarenko

Russian Journal of Money and Finance, 2019, vol. 78, issue 2, 28-42

Abstract: We test the ability of early warning indicators that appear in the literature to predict credit cycle peaks in a cross-section of emerging markets, verifying our findings by cross-sectional validation. Our results confirm that the standard credit gap indicator performs satisfactorily. In fact, we find that, in emerging market economies, it seems rather difficult to outperform this indicator by means of augmented multivariate models. Nevertheless, we have found that the robustness of real-time credit cycle determination may potentially be improved (although with a risk of overfitting the data) by simultaneously monitoring GDP growth, banks’ non-core liabilities, the financial sector’s value added and (to a lesser extent) the change in the debt service ratio.

Keywords: credit cycle; countercyclical capital buffers; early warning indicators; emerging markets (search for similar items in EconPapers)
JEL-codes: E37 E44 E51 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.31477/rjmf.201902.28

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Handle: RePEc:bkr:journl:v:78:y:2019:i:2:p:28-42