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Signals from housing and lending booms

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  • Bunda, Irina
  • Ca' Zorzi, Michele

Abstract

The contribution of this paper is to revisit the Early Warning System (EWS) literature by analysing selected episodes of financial market crisis, i.e. those preceded by a spell of credit and real estate expansions. The aim is to disentangle instances when this constitutes a natural phenomenon associated with a process of financial development and innovation from those where it constitutes a worrisome signal. We identify economic variables that have leading indicator properties, thus helping to distinguish between "benign" episodes from those likely ending with downward pressures on the exchange rate or even a fully-fledged banking crisis. We find that a large current account deficit, a fall in price competitiveness, strong real growth and high public debt-to-GDP ratio increase the probability that a lending or housing boom would be accompanied by financial market tensions shortly after the peak.

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Bibliographic Info

Article provided by Elsevier in its journal Emerging Markets Review.

Volume (Year): 11 (2010)
Issue (Month): 1 (March)
Pages: 1-20

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Handle: RePEc:eee:ememar:v:11:y:2010:i:1:p:1-20

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Web page: http://www.elsevier.com/locate/inca/620356

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Keywords: Early Warning System Financial crises House prices Credit booms;

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References

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Cited by:
  1. Chan Lily & Ng Heng Tiong & Rishi Ramchand, 2012. "A cluster analysis approach to examining Singapore’s property market," BIS Papers chapters, in: Bank for International Settlements (ed.), Property markets and financial stability, volume 64, pages 43-53 Bank for International Settlements.
  2. Ponomarenko, Alexey, 2013. "Early warning indicators of asset price boom/bust cycles in emerging markets," Emerging Markets Review, Elsevier, vol. 15(C), pages 92-106.
  3. Luis M. Cubeddu & Camilo Ernesto Tovar Mora & Evridiki Tsounta, 2012. "Latin America: Vulnerabilities Under Construction?," IMF Working Papers 12/193, International Monetary Fund.
  4. Alessio Ciarlone, 2012. "Wealth effects in emerging economies," Temi di discussione (Economic working papers) 843, Bank of Italy, Economic Research and International Relations Area.

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