Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153528
Authors: 
Bunda, Irina
Ca' Zorzi, Michele
Year of Publication: 
2009
Series/Report no.: 
ECB Working Paper 1094
Abstract: 
The contribution of this paper is to revisit the Early Warning System (EWS) literature by analysing selected episodes of financial market crisis, i.e. those preceded by a spell of credit and real estate expansions. The aim is to disentangle instances when this constitutes a natural phenomenon associated with a process of financial development and innovation from those where it constitutes a worrisome signal. We identify economic variables that have leading indicator properties, thus helping to distinguish between “benign” episodes from those likely ending with downward pressures on the exchange rate or even a fully-fledged banking crisis. We find that a large current account deficit, a fall in price competitiveness, strong real growth and high public debt-to-GDP ratio increase the probability that a lending or housing boom would be accompanied by financial market tensions shortly after the peak.
Subjects: 
credit booms
Early Warning System
Financial crises
House prices
JEL: 
E32
F31
F37
Document Type: 
Working Paper

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