Incorporating financial development indicators into early warning systems

Alexey Ponomarenko and Stas Tatarintsev ()

No wps58, Bank of Russia Working Paper Series from Bank of Russia

Abstract: We set up an early warning system for financial crises based on the Random Forrest approach. We use a novel set of predictors that comprises financial development indicators (e.g. levels of credit to GDP ratio) in addition to conventional imbalances measures (e.g. credit gaps). The evaluation of the model is conducted using a three-step procedure (i.e. training, validation and testing sub-samples). The results indicate that combining financial imbalances and financial development indicators helps to improve the out-of-sample accuracy of the early warning system

Keywords: Early warning indicators; financial crisis; financial development; credit gap; random forest (search for similar items in EconPapers)
JEL-codes: C40 C52 E44 G01 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2020-07
New Economics Papers: this item is included in nep-fdg and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Incorporating financial development indicators into early warning systems (2023)
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