Real-Time Signals Anticipating Credit Booms in Euro-Area Countries

38 Pages Posted: 25 Mar 2020

Date Written: February 28, 2020

Abstract

This paper identifies credit booms in 11 Euro Area countries by tracking private loans from the banking sector. The events are associated with both financial crises and specific macro fluctuations, but the standard identification through threshold methods does not allow to catch credit booms in real-time data. Thus, an early warning model is employed to predict the explosive dynamics of credit through several macro-financial indicators. The model catches a large part of the in-sample events and signals correctly both the global financial crisis and the sovereign debt crisis in an out-of-sample setting by issuing signals in real-time data. Moreover, while tranquil booms are driven by global dynamics, crisis-booms are related to the resilience of domestic banking systems to adverse financial shocks. The results suggest an ex-ante policy intervention can avoid dangerous credit booms by focusing on the solvency of the domestic banking system and financial market's overheating.

Keywords: Credit Boom, Euro Area, Early Warning, Multivariate Logit

JEL Classification: C32, G01, E32, E51

Suggested Citation

Lucidi, Francesco Simone, Real-Time Signals Anticipating Credit Booms in Euro-Area Countries (February 28, 2020). Available at SSRN: https://ssrn.com/abstract=3546170 or http://dx.doi.org/10.2139/ssrn.3546170

Francesco Simone Lucidi (Contact Author)

Sapienza University of Rome ( email )

Piazzale Aldo Moro, 5
Rome, 00185
Italy

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