Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/144509
Authors: 
Ferrari, Stijn
Pirovano, Mara
Year of Publication: 
2016
Series/Report no.: 
Working Paper Research 297
Abstract: 
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.
Subjects: 
Banking crises
Early warning systems
Country-specific thresholds
State-dependent thresholds
JEL: 
C40
E44
E47
E61
G21
Document Type: 
Working Paper

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