{
  "title": "Financial Cycles – Early Warning Indicators of Banking Crises?",
  "publication": "IMF Working Papers, April 29, 2021",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2021/04/29/financial-cycles-early-warning-indicators-of-banking-crises-50257",
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  "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.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Research question: Can the upturns and downturns in financial variables serve as early warning indicators of banking crises?\n- Sample: data from 59 advanced and emerging economies.\n- Main conclusion: Financial overheating can be detected in real time, and aggregating signals from financial variables can flag crises many years before occurrence.\n- Additional finding: The length of financial cycles is of medium-term frequency, which challenges the longer frequency often used for estimating countercyclical capital buffers."
    },
    {
      "heading": "Key findings",
      "content": "- Leading indicators by market type:\n  - Advanced markets: equity prices and output gap are the best leading indicators.\n  - Emerging markets: equity prices, property prices, and credit gap are the best leading indicators.\n- Aggregation of indicators:\n  - Combining information from multiple financial variables flags financial crises many years before the crisis.\n- Financial cycle periodicity:\n  - Financial cycles are of medium-term frequency, calling into question the longer frequency widely used in the estimation of countercyclical capital buffers."
    },
    {
      "heading": "Implications for policy and supervision",
      "content": "- Early detection: Real-time monitoring of equity prices, output gap, property prices, and credit gap can provide early warning signals of financial overheating.\n- Macroprudential frameworks:\n  - The medium-term frequency of financial cycles suggests reassessing the frequency assumptions used for countercyclical capital buffer calibration.\n- Cross-market emphasis:\n  - Different sets of indicators matter in advanced versus emerging markets; surveillance frameworks should be tailored accordingly."
    },
    {
      "heading": "Methodology and scope (as described)",
      "content": "- Scope: 59 advanced and emerging economies.\n- Approach: Identification of leading financial indicators and assessment of aggregated signals for early warning capability.\n- Frequency conclusion: Estimation and analysis indicate financial cycles operate at medium-term frequency.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2021/04/29/financial-cycles-early-warning-indicators-of-banking-crises-50257"
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    "Authors: Sally Chen, Katsiaryna Svirydzenka",
    "Published: April 29, 2021",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513582306.001",
    "Research question: Can the upturns and downturns in financial variables serve as early warning indicators of banking crises?",
    "Sample: data from 59 advanced and emerging economies.",
    "Main conclusion: Financial overheating can be detected in real time, and aggregating signals from financial variables can flag crises many years before occurrence.",
    "Additional finding: The length of financial cycles is of medium-term frequency, which challenges the longer frequency often used for estimating countercyclical capital buffers.",
    "Leading indicators by market type:",
    "Aggregation of indicators:",
    "Financial cycle periodicity:",
    "Early detection: Real-time monitoring of equity prices, output gap, property prices, and credit gap can provide early warning signals of financial overheating.",
    "Macroprudential frameworks:",
    "Cross-market emphasis:",
    "Scope: 59 advanced and emerging economies.",
    "Approach: Identification of leading financial indicators and assessment of aggregated signals for early warning capability.",
    "Frequency conclusion: Estimation and analysis indicate financial cycles operate at medium-term frequency.",
    "**Working Paper**"
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