Financial Cycles – Early Warning Indicators of Banking Crises?

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 mark...

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Bibliographic Details
Main Author: Chen, Sally
Other Authors: Svirydzenka, Katsiaryna
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2021
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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651 4 |a United States 
653 |a Financial Risk Management 
653 |a Financial Crises 
653 |a Crisis management 
653 |a Business cycles 
653 |a Real Estate 
653 |a Informal sector 
653 |a Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) 
653 |a Economic growth 
653 |a Monetary Policy, Central Banking, and the Supply of Money and Credit: General 
653 |a Financial crises 
653 |a Financial sector policy and analysis 
653 |a Cycles 
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653 |a Informal Economy 
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653 |a Economics: General 
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653 |a Housing 
653 |a Credit 
653 |a Money 
653 |a Business Fluctuations 
653 |a Economics of specific sectors 
653 |a Financial cycles 
653 |a Currency crises 
653 |a Banks and Banking 
653 |a Economics 
653 |a Banking crises 
653 |a Macroeconomics 
653 |a Prices 
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520 |a 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