Leading indicators of financial stress in Croatia: a regime switching approach
Tihana Skrinjaric ()
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Tihana Skrinjaric: Bank of England, Stress Test Strategy Division, London, EC2R 6DA, United Kingdom
Public Sector Economics, 2023, vol. 47, issue 2, 205-232
This research focuses on the prediction of the probability of (re)entering high financial stress (via a large set of cyclical risk accumulation indicators). The focus is placed on a specific single-country analysis to obtain answers to questions about which indicators are best in explaining the future probability of (re)entering a high-stress regime. This allows the policymaker to get a better focus on the best-performing variables. It is challenging to monitor a whole set of indicators of cyclical risk build-up; the results could bring into focus a smaller group of the essential variables. The contribution of this paper is in finding a set of indicators that help in forecasting financial stress, in terms of switching from one regime to another. The regime-switching modelsÃ¢â‚¬â„¢ results indicate that some credit specifications, house price dynamics, and debt burden could be best monitored for the case of Croatian data.
Keywords: financial stress; macro-prudential policy; Regime-switching models; Croatia (search for similar items in EconPapers)
JEL-codes: C54 G01 G15 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ipf:psejou:v:47:y:2023:i:2:p:0-0
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