Leading indicators of crisis incidence: evidence from developed countries

Jan Babecký, Tomas Havranek, Jakub Matějů, Marek Rusnák, Kateřina Šmídková and Bořek Vašíček ()

No 1486, Working Paper Series from European Central Bank

Abstract: We search for early warning indicators that could indicate important risks in developed economies. We therefore examine which indicators are most useful in explaining costly macroeconomic developments following the occurrence of economic crises in EU and OECD countries between 1970 and 2010. To define our dependent variable, we bring together a (continuous) measure of crisis incidence, which combines the output and employment loss and the fiscal deficit into an index of real costs, with a (discrete) database of crisis occurrence. In contrast to recent studies, we explicitly take into account model uncertainty in two steps. First, for each potential leading indicator, we select the relevant prediction horizon by using panel vector autoregression. Second, we identify the most useful leading indicators with Bayesian model averaging. Our results suggest that domestic housing prices, share prices, and credit growth, and some global variables, such as private credit, are risk factors worth monitoring in developed economies. JEL Classification: C33, E44, E58, F47, G01

Keywords: Bayesian model averaging; early warning indicators; Macro-Prudential Policies (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (13)

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Journal Article: Leading indicators of crisis incidence: Evidence from developed countries (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20121486

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