Credit, Asset Prices, and Financial Stress in Canada
AbstractHistorical narratives typically associate financial crises with credit expansions and asset price misalignments. The question is whether some combination of measures of credit and asset prices can be used to predict these events. Borio and Lowe (2002) answer this question in the affirmative for a sample of 34 countries, but the question is surprisingly difficult to answer for individual developed countries that have faced very few, if any, financial crises in the past. To circumvent this problem, we focus on financial stress and ask whether credit and asset price movements can help predict it. To measure financial stress, we use the Financial Stress Index (FSI) developed by Illing and Liu (2006). Other innovations include the estimation and forecasting using both linear and endogenous threshold models, and a wide range of asset prices (stock and housing prices, for example). The exercise is performed for Canada, but the methodology is suitable for any country that fits the above description.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 08-10.
Length: 32 pages
Date of creation: 2008
Date of revision:
Contact details of provider:
Postal: 234 Wellington Street, Ottawa, Ontario, K1A 0G9, Canada
Phone: 613 782-8845
Fax: 613 782-8874
Web page: http://www.bank-banque-canada.ca/
Credit and credit aggregates; Financial stability;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-29 (All new papers)
- NEP-FMK-2008-04-29 (Financial Markets)
- NEP-MAC-2008-04-29 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
- Graciela L. Kaminsky & Carmen M. Reinhart, 1996.
"The twin crises: the causes of banking and balance-of-payments problems,"
International Finance Discussion Papers
544, Board of Governors of the Federal Reserve System (U.S.).
- Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
- Reinhart, Carmen & Kaminsky, Graciela, 1999. "The twin crises: The causes of banking and balance of payments problems," MPRA Paper 14081, University Library of Munich, Germany.
- Elke Hanschel & Pierre Monnin, 2005. "Measuring and forecasting stress in the banking sector: evidence from Switzerland," BIS Papers chapters, in: Bank for International Settlements (ed.), Investigating the relationship between the financial and real economy, volume 22, pages 431-49 Bank for International Settlements.
- Claudio Borio & Mathias Drehmann, 2009.
"Towards an Operational Framework for Financial Stability: "Fuzzy" Measurement and its Consequences,"
Working Papers Central Bank of Chile
544, Central Bank of Chile.
- Claudio Borio & Mathias Drehmann, 2011. "Toward an Operational Framework for Financial Stability: “Fuzzy” Measurement and Its Consequences," Central Banking, Analysis, and Economic Policies Book Series, in: Rodrigo Alfaro (ed.), Financial Stability, Monetary Policy, and Central Banking, edition 1, volume 15, chapter 4, pages 063-123 Central Bank of Chile.
- Claudio Borio & Claudio Mathias Drehmann, 2009. "Towards an operational framework for financial stability: "fuzzy" measurement and its consequences," BIS Working Papers 284, Bank for International Settlements.
- Jahn, Nadya & Kick, Thomas, 2012. "Early warning indicators for the German banking system: A macroprudential analysis," Discussion Papers 27/2012, Deutsche Bundesbank, Research Centre.
- Matkovskyy, Roman, 2013. "To the Problem of Financial Safety Estimation: the Index of Financial Safety of Turkey," MPRA Paper 47673, University Library of Munich, Germany.
- Schwaab, Bernd & Koopman, Siem Jan & Lucas, André, 2011. "Systemic risk diagnostics: coincident indicators and early warning signals," Working Paper Series 1327, European Central Bank.
- Matkovskyy, Roman, 2012. "The Index of the Financial Safety (IFS) of South Africa and Bayesian Estimates for IFS Vector-Autoregressive Model," MPRA Paper 42173, University Library of Munich, Germany.
- Oet, Mikhail V. & Bianco, Timothy & Gramlich, Dieter & Ong, Stephen J., 2013. "SAFE: An early warning system for systemic banking risk," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4510-4533.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.