Quasi real time early warning indicators for costly asset price boom/bust cycles: A role for global liquidity
AbstractWe test the performance of a host of real and financial variables as early warning indicators for costly aggregate asset price boom/bust cycles, using data for 18 OECD countries. A quasi real time signaling approach is used to predict asset price booms that have serious real economy consequences. We use a loss function to rank the indicators given policy makers' relative preferences with respect to missed crises and false alarms and suggest a new measure for assessing the usefulness of indicators. Global measures of liquidity, in particular a global private credit gap, are the best performing indicators and display forecasting records, which are informative for policy makers interested in timely reactions to growing financial imbalances.
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Bibliographic InfoArticle provided by Elsevier in its journal European Journal of Political Economy.
Volume (Year): 27 (2011)
Issue (Month): 3 (September)
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Web page: http://www.elsevier.com/locate/inca/505544
Early warning indicators Signaling approach Leaning against the wind Asset price booms and busts Global liquidity;
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