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credit to gdp ratio by country

Closer examination of the simulated data shows that large differences between the gaps calculated on shorter and longer samples tend to arise in situations where the shorter sample starts near the peak or the trough of the financial cycle. Varying the threshold varies the relationship between true positives (signal "on" and "event occurs") and false positives (signal "on" and "non-occurrence"). Lowering the threshold in this case changes the true positive and false positive rates, but always by the same amount. In the case of the fully informative indicator, all operators will select the calibration that offers perfect accuracy.

Some have confirmed its usefulness as an indicator of financial vulnerabilities, but others have been more critical about its properties. Gerdrup et al (2013) and Farrell (2013) argue along the same lines for Norwegian and South African data, respectively.We have reviewed the main practical and conceptual criticisms of the credit-to-GDP gap as a guide to setting countercyclical capital buffers under Basel III.From a practical perspective, there are relevant measurement issues with the credit gap, which critics have pointed out. Indeed, research points to composite indicators that statistically outperform the credit-to-GDP gap. A prolonged but large steady increase in the credit-to-GDP ratio will eventually lead to a lower credit gap without necessarily implying that financial stability risks have receded. There are both statistical and economic counterarguments against this criticism.From a statistical point of view, the criticism regarding the correlation between the credit gap and real GDP growth is only partly correct. For each operator, the distance between the red line at the point of tangency and the 45° line represents the gain they obtain given their preferences and the options offered by the specific indicator.The AUC is calculated as the area under the entire ROC curve. Nevertheless, Kauko (2012) suggests using a five-year moving average instead of current GDP levels in the denominator of the ratio as a way of minimising the problem of sudden falls in GDP.
And, as many observers have pointed out, what works best for the entire panel might work for most countries and periods but not necessarily for all individual situations.As with other countercyclical policies, including monetary policy, decisions incorporate a substantial element of judgment. The BIS hosts nine international organisations engaged in standard setting and the pursuit of financial stability through the Basel Process.Basel III introduced a countercyclical capital buffer (CCB) aimed at strengthening banks' defences against the build-up of systemic vulnerabilities. I have looked at some charts and I am seeing that the US has a negative Credit-to-GDP gap, how can it be negative? 1. But never read too much on a single metric, economic systems are too complex.Thanks for contributing an answer to Economics Stack Exchange!Use MathJax to format equations. By using our site, you acknowledge that you have read and understand our Economics Stack Exchange is a question and answer site for those who study, teach, research and apply economics and econometrics. For indicators that decline ahead of events, the AUC takes values between 0.5 (uninformative) and zero (fully informative).Given its overall robust performance, should the CCB be anchored mechanically on the credit-to-GDP gap? This correlation is indeed negative across a panel of 53 countries over the period 1980-2013 but small in size (More importantly, the starting point of the criticism is incorrect. The filter is run recursively for each period, and the ex post evaluation of performance of the credit gap is based on this recursive calculation. It is not an instrument to manage the cycle, even if it may potentially have a smoothing impact. Furthermore, given that the function of the credit gap is not to set a target for aggregate credit but to guide the build-up of bank capital ahead of problems, it should be judged solely on its indicator properties for incipient banking stress. Their finding has been subsequently confirmed for a broad array of countries and a long time span that includes the most recent crisis. The framework envisages that authorities would refer to the common reference guide in communicating decisions (BCBS (2010)).The credit-to-GDP gap ("credit gap") is defined as the difference between the credit-to-GDP ratio and its long-term trend. Thematic data tables from WDI. Look for example at the, informative with data and literature, page of the Because we are accepting that the trend likely reflects a A higher positive gap means that the private sector borrows at a level that is perhaps "not justified" by the current output-producing abilities of the economy. Country. The second problem arises because structural breaks in the underlying series can have an important effect on the calculation of the trend. For one, the forecast performance of the two differently derived gaps in the actual data is the same (Overall, these results validate the practical rule of thumb that suggests using the credit gap only when at least 10 years of data for the credit-to-GDP ratio are already available.

For example, the credit gap in the Netherlands signalled vulnerabilities from 1998 to 2004, but a systemic banking crisis emerged only in 2008 (admittedly also due to cross-border factors).These problems highlight the risk from a mechanical use of the credit gap.

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