Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/153919
Authors: 
Babecký, Jan
Havránek, Tomáš
Matějů, Jakub
Rusnák, Marek
Šmídková, Kateřina
Vašíček, Bořek
Year of Publication: 
2012
Series/Report no.: 
ECB Working Paper 1486
Abstract: 
We search for early warning indicators that could indicate important risks in developed economies. We therefore examine which indicators are most useful in explaining costly macroeconomic developments following the occurrence of economic crises in EU and OECD countries between 1970 and 2010. To define our dependent variable, we bring together a (continuous) measure of crisis incidence, which combines the output and employment loss and the fiscal deficit into an index of real costs, with a (discrete) database of crisis occurrence. In contrast to recent studies, we explicitly take into account model uncertainty in two steps. First, for each potential leading indicator, we select the relevant prediction horizon by using panel vector autoregression. Second, we identify the most useful leading indicators with Bayesian model averaging. Our results suggest that domestic housing prices, share prices, and credit growth, and some global variables, such as private credit, are risk factors worth monitoring in developed economies.
Subjects: 
Bayesian model averaging
Early Warning Indicators
Macro-Prudential Policies
JEL: 
C33
E44
E58
F47
G01
Document Type: 
Working Paper

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