Does one size fit all at all times? The role of country specificities and state dependencies in predicting banking crises
Stijn Ferrari () and
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Stijn Ferrari: Prudential Policy and Financial Stability, National Bank of Belgium
No 297, Working Paper Research from National Bank of Belgium
Given the indisputable cost of policy inaction in the run-up to banking crises as well as the negative side effects of unwarranted policy activation, policymakers would strongly benefit from earlywarning thresholds that more accurately predict crises and produce fewer false alarms. This paper presents a novel yet intuitive methodology to compute country-specific and state-dependent thresholds for early-warning indicators of banking crises. Our results for a selection of early-warning indicators for banking crises in 14 EU countries show that the benefits of applying the conditional moments approach can be substantial. The methodology provides more robust signals and improves the early-warning performance at the country-specific level, by accounting for country idiosyncrasies and state dependencies, which play an important role in national supervisory authorities’ macroprudential surveillance.
Keywords: Banking crises; Early warning systems; Country-specific thresholds; State-dependent thresholds (search for similar items in EconPapers)
JEL-codes: C40 E44 E47 E61 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-eec and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:201606-297
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