An Early Warning Model for Predicting Credit Booms using Macroeconomic Aggregates

Alexander Guarín López, Andres Gonzalez, Daphné Skandalis () and Daniela Sánchez ()

No 9826, Borradores de Economia from Banco de la Republica

Abstract: In this paper, we propose an alternative methodology to determine the existence of credit booms, which is a complex and crucial issue for policymakers. In particular, we exploit the Mendoza and Terrones (2008)´s idea that macroeconomic aggregates other than the credit growth rate contain valuable information to predict credit boom episodes. Our econometric method is used to estimate and predict the probability of being in a credit boom. We run empirical exercises on quarterly data for six Latin American countries between 1996 and 2011. In order to capture simultaneously model and parameter uncertainty, we implement the Bayesian model averaging method. As we employ panel data, the estimates may be used to predict booms of countries which are not considered in the estimation. Overall, our findings show that macroeconomic variables contain valuable information to predict credit booms. In fact, with our method the probability of detecting a credit boom is 80%, while the probability of not having false alarms is greater than 92%.

Keywords: Early Warning Indicator; Credit Booms; Business Cycles; Emerging Markets. (search for similar items in EconPapers)
JEL-codes: C53 E32 E37 E44 E51 (search for similar items in EconPapers)
Pages: 17
Date: 2012-07-22
New Economics Papers: this item is included in nep-ban and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.banrep.gov.co/docum/ftp/be_723.pdf

Related works:
Journal Article: An Early Warning Model for Predicting Credit Booms Using Macroeconomic Aggregates (2014)
Journal Article: An Early Warning Model for Predicting Credit Booms Using Macroeconomic Aggregates (2014)
Working Paper: An Early Warning Model for Predicting Credit Booms using Macroeconomic Aggregates (2012)
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:col:000094:009826

Access Statistics for this paper

More papers in Borradores de Economia from Banco de la Republica
Bibliographic data for series maintained by Clorith Angelica Bahos Olivera ().