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Financial Cycles – Early Warning Indicators of Banking Crises?
Author:
Ms. Sally Chen
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Katsiaryna Svirydzenka
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Series:
IMF Working Papers
Volume/Issue:
Volume 2021: Issue 116
Language:
English
Publication Date:
29 Apr 2021
DOI:
https://doi.org/10.5089/9781513582306.001
ISBN:
9781513582306
ISSN:
1018-5941
Pages:
79
Keywords:
equity price cycle; property price cycle; banking crisis; BIS-definition credit cycle; C. cycle property; Financial cycles; Banking crises; Credit; Land prices; Business cycles; Global
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Can the upturns and downturns in financial variables serve as early warning indicators of banking crises? Using data from 59 advanced and emerging economies, we show that financial overheating can be detected in real time. Equity prices and output gap are the best leading indicators in advanced markets; in emerging markets, these are equity and property prices and credit gap. Moreover, aggregating this information flags financial crisis many years before the crisis. Lastly, we find that the length of financial cycles is of medium-term frequency, calling into question the longer frequency widely used in the estimation of countercyclical capital buffers.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund