Evaluating Indicators for Use in Setting the Countercyclical Capital Buffer
Tölö, Eero; Laakkonen, Helinä; Kalatie, Simo (01.03.2018)
JulkaisusarjaInternational Journal of Central Banking
Numero2 ; March 2018
Julkaisun pysyvä osoite onhttps://urn.fi/URN:NBN:fi:bof-201803221385
The European Systemic Risk Board (ESRB) recently issued a recommendation on the use of early warning indicators in macroprudential decisions involving the countercyclical capital buffer (Basel III framework). In addition to a primary indicator, deviation in the credit-to-GDP ratio from long-term trend, the ESRB advises the use of supplemental indicators to measure private-sector credit developments and debt burden, overvaluation of property prices, external imbalances, mispricing of risk, and strength of bank balance sheets. Based on empirical analysis of data for European Union countries, a large assortment of potential indicators, and comprehensive robustness checks, we propose specific suitable early warning indicators for each of the six risk categories set forth by the ESRB.
Published in Bank of Finland Research Discussion Papers 8/2015.