Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/193552
Authors: 
Virtanen, Timo
Tölö, Eero
Virén, Matti
Taipalus, Katja
Year of Publication: 
2017
Series/Report no.: 
ESRB Working Paper Series 45
Abstract: 
In several recent studies unit root methods have been used in detection of financial bubbles in asset prices. The basic idea is that fundamental changes in the autocorrelation structure of relevant time series imply the presence of a rational price bubble. We provide cross-country evidence for performance of unit-root-based early warning systems in ex-ante prediction of financial crises in 15 EU countries over the past three decades. We find especially high performance for time series that are explicitly related to debt, which issue signals a few years in advance of a crisis. Combining signals from multiple time series further improves the predictions. Our results suggest an early warning tool based on unit root methods provides a valuable accessory in financial stability supervision.
Subjects: 
Financial crises
unit root
combination of forecasts
JEL: 
G01
G14
G21
Persistent Identifier of the first edition: 
ISBN: 
978-92-95081-93-2
Document Type: 
Working Paper

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