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Determination of the Current Phase of the Credit Cycle in Emerging Markets

Author

Listed:
  • Elena Deryugina

    (Bank of Russia)

  • Alexey Ponomarenko

    (Bank of Russia)

Abstract

We test the ability of early warning indicators that appear in the literature to predict credit cycle peaks in a cross-section of emerging markets, verifying our findings by cross-sectional validation. Our results confirm that the standard credit gap indicator performs satisfactorily. In fact, we find that, in emerging market economies, it seems rather difficult to outperform this indicator by means of augmented multivariate models. Nevertheless, we have found that the robustness of real-time credit cycle determination may potentially be improved (although with a risk of overfitting the data) by simultaneously monitoring GDP growth, banks’ non-core liabilities, the financial sector’s value added and (to a lesser extent) the change in the debt service ratio.

Suggested Citation

  • Elena Deryugina & Alexey Ponomarenko, 2019. "Determination of the Current Phase of the Credit Cycle in Emerging Markets," Russian Journal of Money and Finance, Bank of Russia, vol. 78(2), pages 28-42, June.
    • Handle: RePEc:bkr:journl:v:78:y:2019:i:2:p:28-42
    DOI: 10.31477/rjmf.201902.28
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    References listed on IDEAS

    as
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    Cited by:

    1. Deryugina, Elena & Ponomarenko, Alexey & Rozhkova, Anna, 2020. "When are credit gap estimates reliable?," Economic Analysis and Policy, Elsevier, vol. 67(C), pages 221-238.
    2. Marcin Pietrzak, 2021. "Can Financial Soundness Indicators Help Predict Financial Sector Distress?," IMF Working Papers 2021/197, International Monetary Fund.

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    More about this item

    Keywords

    credit cycle; countercyclical capital buffers; early warning indicators; emerging markets;
    All these keywords.

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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