Re-anchoring countercyclical capital buffers: Bayesian estimates and alternatives focusing on credit growth

Gonzalez, Rodrigo Barbone; Marinho, Leonardo Sousa Gomes; Lima, Joaquim

doi:10.1016/j.ijforecast.2017.04.006

Cited by 13 publications

(10 citation statements)

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“…We depart from earlier studies who define the null to be the crisis state(Edison, 2003;Gonzalez et al, 2017;Borio and Drehmann, 2009). Consequently, our type-1 errors are false positives, and our type-2 errors are false negatives.…”

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confidence: 70%

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Optimizing Credit Gaps for Predicting Financial Crises: Modelling Choices and Tradeoffs

Beltran

Paine²

2021

SSRN Journal

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Credit gaps are good predictors for financial crises, and banking regulators recommend using them to inform countercyclical capital buffers for banks. Researchers typically create credit gap measures using trend-cycle decomposition methods, which require many modelling choices, such as the method used, and the smoothness of the underlying trend. Other choices hinge on the tradeoffs implicit in how gaps are used as early warning indicators (EWIs) for predicting crises, such as the preference over false positives and false negatives. We evaluate how the performance of credit-gap-based EWIs for predicting crises is influenced by these modelling choices. For the most common trend-cycle decomposition methods used to recover credit gaps, we find that optimally smoothing the trend enhances out-of-sample prediction. We also show that out-ofsample performance improves further when we consider a preference for robustness of the credit gap estimates to the arrival of new information, which is important as any EWI should work in real-time. We offer several practical implications.

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confidence: 70%

“…We adjust the error variance, V , which affects the size of the deviations of credit-to-GDP from its trend. Example: Gonzalez et al (2017).…”

Section: Implementing the Early Warning Indicatormentioning

confidence: 99%

Optimizing Credit Gaps for Predicting Financial Crises: Modelling Choices and Tradeoffs

Beltran

Paine²

2021

SSRN Journal

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“…Cyclical swings in credit conditions lead to varying degrees of crises stemming from sys-temic risks in the interconnected capital markets (Gonzalez et al, 2017). In turn this has led to concerns over means for reducing the pro-cyclicality of prudential and capital market regulation (BIS, 2010a,b) 8 .…”

Section: Literature Reviewmentioning

confidence: 99%

Crisis transmission: Visualizing vulnerability

Dungey

Islam

Volkov

2020

Pacific-Basin Finance Journal

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This paper develops a means of visualizing the vulnerability of complex systems of financial interactions around the globe using Neural Network clustering techniques. We show how time-varying spillover indices can be translated into two dimensional crisis maps. The crisis maps have the advantage of showing the changing paths of vulnerability, including the direction and extent of the effect between source and affected markets. Using equity market data for 31 global markets over 1998-2017 we provide these crisis maps. These tools help portfolio managers and policy makers to distinguish which of the available tools for crisis management will be most appropriate for the form of vulnerability in play.

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“…7 Used as the main indicator of the stage of the financial cycle (Shin, 2013;CGFS, 2010;Vinals, 2011). Some studies have already signaled its effectiveness (Drehmann et al, 2010;Gonzalez et al, 2015). 8 Indicators of bank balance sheet liabilities (funding) related to the financial cycle.…”

Section: Systemic Riskmentioning

confidence: 99%

Macroprudential policy debate, concepts and the Brazilian context

Português

Luporini

Licha

2018

BKR

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<div class="page" title="Page 1"><div class="layoutArea"><div class="column"><p><span>The economics literature related to the financial system seeks to define the concepts of financial stability, systemic risk and macroprudential instruments for the purpose of drafting a policy that essentially "leans against the wind", that is, a policy that monitors macroeconomic vulnerabilities and combats system instability. Such a policy should cover all financial institutions involved in credit intermediation (not just banks) and consider the pro-cyclical and intrinsic nature of risk in the financial system, and account for the spillovers effects of policies in other countries, that is, the global context. This article summarizes the main concepts related to macroprudential policy discussed in the economics literature after the crisis the 2008 financial crisis. In addition, we describe macroprudential policy in the context of the Brazilian financial system, specifically major policies implemented in the banking regulatory environment related to Basel III and non-bank regulations related to shadow banks. After the 2008 crisis, Brazil was one of the precursors countries in operating macroprudential instruments to curb excessive credit growth and strong capital inflows. The Brazilian financial system has a broad regulatory perimeter, adhering to international standards and covering the Shadow banking system. This system has a weak connection with the banking system and is small relative to the financial assets of the national and global systems. </span></p></div></div></div>

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Re-anchoring countercyclical capital buffers: Bayesian estimates and alternatives focusing on credit growth

Cited by 13 publications

References 20 publications

Optimizing Credit Gaps for Predicting Financial Crises: Modelling Choices and Tradeoffs

Optimizing Credit Gaps for Predicting Financial Crises: Modelling Choices and Tradeoffs

Crisis transmission: Visualizing vulnerability

Macroprudential policy debate, concepts and the Brazilian context

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