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
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 G01 E44 (search for similar items in EconPapers)
Pages: 22 pages
New Economics Papers: this item is included in nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:bkr:wpaper:wps58
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