On the long-run calibration of the credit-to-GDP gap as a banking crisis predictor
Kauko, Karlo; Tölö, Eero (22.02.2019)
Numero
6/2019Julkaisija
Bank of Finland
2019
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-201902251071Tiivistelmä
The trend deviation of the Credit-to-GDP ratio (“Basel gap”) is a widely used early warning indicator of banking crises. It is calculated with the one-sided Hodrick-Prescott filter using an extremely large value of the smoothing parameter λ. We recalibrate the smoothing parameter with panel data covering almost one and a half centuries and 15 countries. The optimal λ is found to be much lower than previously suggested. The 2008 crisis does not dominate the results. The long sample almost eliminates filter initialisation problems.
Julkaisuhuomautus
Also in Finnish Economic Papers 2020 ; 29 ; 2 https://www.taloustieteellinenyhdistys.fi/finnish-economic-papers-2-2020/