Signals from housing and lending booms

Irina Bunda () and Michele Ca' Zorzi

No 1094, Working Paper Series from European Central Bank

Abstract: The contribution of this paper is to revisit the Early Warning System (EWS) literature by analysing selected episodes of financial market crisis, i.e. those preceded by a spell of credit and real estate expansions. The aim is to disentangle instances when this constitutes a natural phenomenon associated with a process of financial development and innovation from those where it constitutes a worrisome signal. We identify economic variables that have leading indicator properties, thus helping to distinguish between “benign” episodes from those likely ending with downward pressures on the exchange rate or even a fully-fledged banking crisis. We find that a large current account deficit, a fall in price competitiveness, strong real growth and high public debt-to-GDP ratio increase the probability that a lending or housing boom would be accompanied by financial market tensions shortly after the peak. JEL Classification: E32, F31, F37

Keywords: credit booms; Early Warning System; Financial crises; house prices (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-mac, nep-mic, nep-rmg and nep-ure
Note: 343031
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Journal Article: Signals from housing and lending booms (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20091094

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