Financial Cycles – Early Warning Indicators of Banking Crises?

April 29, 2021

Preview Citation

Format: Chicago

Sally Chen, and Katsiaryna Svirydzenka. Financial Cycles – Early Warning Indicators of Banking Crises?, (USA: International Monetary Fund, 2021) accessed October 6, 2024

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.

Summary

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.

Subject: Banking crises, Business cycles, Credit, Economic growth, Financial crises, Financial cycles, Financial sector policy and analysis, Land prices, Money, Prices

Keywords: Banking crises, Banking crisis, BIS-definition credit cycle, Business cycles, C. cycle property, Credit, Equity price cycle, Financial cycles, Global, Land prices, Property price cycle

Publication Details

Pages:

79
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/116
Stock No:

WPIEA2021116
ISBN:

9781513582306
ISSN:

1018-5941

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