Evaluating Indicators for Use in Setting the Countercyclical Capital Buffer
Year: 2018
Type: preprint
Abstract: The European Systemic Risk Board (ESRB) recently issued a recommendation on the use of early warning indicators in macroprudential decisions involving the countercyclical capital buffer (Basel III framework). In addition to a primary indicator, deviation in the credit-to-GDP ratio from long-term trend, the ESRB advises the use of supplemental indicators to measure private-sector credit developments and debt burden, overvaluation of property prices, external imbalances, mispricing of risk, and strength of bank balance sheets. Based on empirical analysis of data for European Union countries, a large assortment of potential indicators, and comprehensive robustness checks, we propose specific suitable early warning indicators for each of the six risk categories set forth by the ESRB.
Authors: Eero Tölö, Helinä Laakkonen, Simo Kalatie
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2804932073