Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208340
Authors: 
Sondermann, David
Zorell, Nico
Year of Publication: 
2019
Series/Report no.: 
ECB Working Paper 2306
Abstract: 
Macroeconomic imbalances increase the vulnerability of an economy to adverse shocks, which in turn can lead to crises with severe economic and social costs. We propose an early warning model that predicts such crises. We identify a set of macroeconomic indicators capturing domestic and external imbalances that jointly predict severe recessions (i.e. growth crises) in a multivariate discrete choice framework. The approach allows us to quantify an economy's macroeconomic vulnerabilities at any point in time. In particular, the model would have pointed early on to emerging vulnerabilities in all the euro area countries that registered severe recessions in the years after 2007. We also show that the model can be applied beyond the euro area crisis in that its main results remain robust to changes in assumptions and sample composition.
Subjects: 
macroeconomic imbalances
early warning models
growth crises
JEL: 
E37
E44
F47
O52
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3568-5
Document Type: 
Working Paper

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