Procyclicality and the Search for Early Warning Indicators

17 Pages Posted: 9 Jan 2014

See all articles by Hyun Song Shin

Hyun Song Shin

Bank for International Settlements (BIS)

Date Written: December 2013


This paper compares three types of early warning indicators of financial instability – those based on financial market prices, those based on normalized measures of total credit and those based on liabilities of financial intermediaries. Prices perform well as concurrent indicators of market conditions but are not suitable as early warning indicators. Total credit and liabilities convey similar information and perform better as early warning indicators, but liabilities are more transparent and the decomposition between core and non-core liabilities convey additional useful information.

Keywords: Business cycles, Capital markets, Credit, Demand for money, China, Banks, Monetary aggregates, Non-core liabilities, credit cycles, financial stability, discount rates, monetary fund, international capital markets, money stock, capital flow reversals, access to capital markets, money demand, capital inflows, global capital markets, eurodollar market, equity prices, open capital markets, monetary authority, long-term interest rates, hong kong monetary authority, capital market funding, hedging, monetary stability, excess liquidity, monetary analysis

JEL Classification: E44, F34, G01

Suggested Citation

Shin, Hyun Song, Procyclicality and the Search for Early Warning Indicators (December 2013). IMF Working Paper No. 13/258, Available at SSRN:

Hyun Song Shin (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002


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