Countercyclical Capital Buffers and Credit-to-GDP Gaps: Simulation for Central, Eastern, and Southeastern Europe

Adam Gersl and Jakub Seidler

Eastern European Economics, 2015, vol. 53, issue 6, 439-465

Abstract: Under Basel III, banks are required to build up countercyclical capital buffers during periods of excessive credit growth to cover future credit losses. Based on a review of the credit boom episodes in sixteen Central, Eastern, and Southeastern European countries during 2000s, two measures of excessive credit are calculated: one based on the Hodrick-Prescott filter, as suggested by the Basel Committee for the activation of the countercyclical buffer, and the other based on an estimate of equilibrium credit. While the filtering-based measure signals future credit losses quite well, using the measure based on equilibrium credit improves the forecast of future deleveraging and its impact on GDP.

Date: 2015
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DOI: 10.1080/00128775.2015.1102602

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