Measuring aggregate risk: Can we robustly identify asset-price boom–bust cycles?
Laurent Clerc () and
Journal of Banking & Finance, 2014, vol. 46, issue C, 132-150
We investigate the extent to which it is possible to detect asset-price booms and banking crises according to alternative identification strategies and we assess their robustness. We find some evidence that house price-booms are more likely to turn into costly recession or to trigger a banking crisis than stock-price booms. Resorting both to a non-parametric approach and a discrete-choice (logit) model, we analyze the ability of a wide set of indicators to robustly explain costly asset-price booms. According to our results, real long-term interest rates and real stock prices tend to increase the probability of a costly housing-price boom, whereas real GDP tends to increase the probability of a costly stock-price boom. Interestingly, the credit-to-GDP gap indicator, sometimes put forward in the literature as a key reference for setting countercyclical capital buffers, does not seem to be a robust leading indicator of costly booms or banking crises.
Keywords: Early warning indicators; Discrete-choice model; Asset price booms and busts; Macro-prudential policy; Leaning against the wind policies (search for similar items in EconPapers)
JEL-codes: E37 E44 E51 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:46:y:2014:i:c:p:132-150
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