Measuring Credit Gaps for Macroprudential Policy Guidance: An Application to Georgia

Akaki Liqokeli
Additional contact information
Akaki Liqokeli: Financial Stability Analysis and Macro-financial Modeling Division, National Bank of Georgia

No 05/2020, NBG Working Papers from National Bank of Georgia

Abstract: According to international experience, episodes of rapid credit growth are often associated with increasing vulnerabilities within the financial system. It is of vital importance to identify risky credit expansions early enough so that macroprudential policy can respond and ensure overall financial stability. For this purpose, a reliable policy guide is essential to detect the build-up of systemic risks and to design optimal macroprudential policy responses. The Basel Committee on Banking Supervision recommends using the credit-to-GDP gap obtained from a one-sided Hodrick-Prescott (HP) filter as a common reference guide for setting the countercyclical capital buffer – a recently introduced macroprudential policy tool for addressing financial stability risks. This paper proposes two alternative approaches to credit-to-GDP gap estimation in order to enrich the analytical toolkit of the macroprudential policy framework. By addressing the shortcomings of the Basel credit-to-GDP gap, the proposed approaches offer more insightful and informationally efficient early warning indicators of financial stress. These indicators can complement the Basel credit-to-GDP gap in guiding more informed macroprudential policy decisions.

Keywords: Credit Cycle; Credit Gap; Countercyclical Capital Buffer; Macroprudential Policy; Financial Stability (search for similar items in EconPapers)
JEL-codes: C32 E32 E58 G01 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2020-12
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://nbg.gov.ge/fm/wp/nbg-wp-2020-05.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aez:wpaper:2020-05

Access Statistics for this paper

More papers in NBG Working Papers from National Bank of Georgia Contact information at EDIRC.
Bibliographic data for series maintained by Giorgi Tsutskiridze ().