On the Credit-to-GDP Gap and Spurious Medium-Term Cycles

8 Pages Posted: 20 Apr 2020

Date Written: March 27, 2020

Abstract

The Basel III framework advises considering a reference indicator at the country level to guide the setting of the countercyclical capital buffer: the credit-to-GDP gap. In this paper, I provide empirical evidence suggesting that the credit-to-GDP gap is subject to spurious medium-term cycles, i.e. artificial boom-bust cycles with a maximum duration of around 40 years. This may impair its use as a reference indicator.

Keywords: Basel III, Hodrick-Prescott filter, detrending

JEL Classification: C10, E32, E58, G01

Suggested Citation

Schüler, Yves Stephan, On the Credit-to-GDP Gap and Spurious Medium-Term Cycles (March 27, 2020). Available at SSRN: https://ssrn.com/abstract=3560257 or http://dx.doi.org/10.2139/ssrn.3560257

Yves Stephan Schüler (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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