Forecasting the European Credit Cycle Using Macroeconomic Variables

36 Pages Posted: 1 Mar 2011

See all articles by Florian Ielpo

Florian Ielpo

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES)

Date Written: March 1, 2011

Abstract

We question the ability of macroeconomic data to predict risk appetite and "flight-to-quality" periods in the European credit market using a model inspired by the Markov Switching (MS) literature. This model allows for a direct mapping of exogenous variables into states probabilities. We find that various survey and transformed hard data have a forecasting power. We show that despite its depth, the 2008-2009 crisis should not be regarded as an unusual episode that would have to be modelled by an additional state. Finally, we show that our model outperforms a pure MS model in terms of forecasting accuracy, thus clearly indicating that economic figures are helpful in forecasting the credit cycle.

Keywords: Credit cycle, Switching regimes, Density forecast

JEL Classification: G17, C53

Suggested Citation

Ielpo, Florian, Forecasting the European Credit Cycle Using Macroeconomic Variables (March 1, 2011). Available at SSRN: https://ssrn.com/abstract=1773364 or http://dx.doi.org/10.2139/ssrn.1773364

Florian Ielpo (Contact Author)

Université Paris I Panthéon-Sorbonne - Centre d'Economie de la Sorbonne (CES) ( email )

106-112 Boulevard de l'hopital
106-112 Boulevard de l'Hôpital
Paris Cedex 13, 75647
France

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
187
Abstract Views
1,193
Rank
291,987
PlumX Metrics