EconPapers    
Economics at your fingertips  
 

Early Warning of Financial Stress Events: A Credit-Regime-Switching Approach

Fuchun Li and Hongyu Xiao

Staff Working Papers from Bank of Canada

Abstract: We propose an early warning model for predicting the likelihood of a financial stress event for a given future time, and examine whether credit plays an important role in the model as a non-linear propagator of shocks. This propagation takes the form of a threshold regression in which a regime change occurs if credit conditions cross a critical threshold. The in-sample and out-of-sample forecasting performances are encouraging. In particular, the out-of-sample forecasting results suggest that the model based on the credit-regime-switching approach outperforms the benchmark models based on a linear regression and signal extraction approach across all forecasting horizons and all criteria considered.

Keywords: Econometric and statistical methods; Financial stability (search for similar items in EconPapers)
JEL-codes: C12 C14 G01 G17 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2016
New Economics Papers: this item is included in nep-for and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.bankofcanada.ca/wp-content/uploads/2016/04/swp2016-21.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:bca:bocawp:16-21

Access Statistics for this paper

More papers in Staff Working Papers from Bank of Canada 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2024-06-25
Handle: RePEc:bca:bocawp:16-21