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Macroeconomic Imbalances as Indicators for Debt Crises in Europe

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  • Tobias Knedlik
  • Gregor von Schweinitz

Abstract

European authorities and scholars published proposals on which indicators of macroeconomic imbalances might be used to uncover risks for the sustainability of public debt in the European Union. We test the ability of four proposed sets of indicators to send early-warnings of debt crises using a signals approach for the study of indicators and the construction of composite indicators. We find that a broad composite indicator has the highest predictive power. This fact still holds true if equal weights are used for the construction of the composite indicator in order to reflect the uncertainty about the origin of future crises.

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Bibliographic Info

Paper provided by Halle Institute for Economic Research in its series IWH Discussion Papers with number 12.

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Date of creation: Aug 2011
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Handle: RePEc:iwh:dispap:12-11

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Keywords: macroeconomic surveillance; macroeconomic imbalances; economic governance; signals approach; European Union (EU); European Monetary Union (EMU);

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Citations

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Cited by:
  1. El-Shagi, Makram & Kelly, Logan, 2013. "Liquidity in the Liquidity Crisis: Evidence from Divisia Monetary Aggregates in Germany and the European Crisis Countries," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79935, Verein für Socialpolitik / German Economic Association.
  2. Luigi Bonatti & Andrea Fracasso, 2013. "The German Model and the European Crisis," Journal of Common Market Studies, Wiley Blackwell, vol. 51(6), pages 1023-1039, November.
  3. Peter Wierts & Henk van Kerkhoff & Jakob de Haan, 2012. "Trade Dynamics in the Euro Area: The role of export destination and composition," DNB Working Papers 354, Netherlands Central Bank, Research Department.
  4. Knedlik, Tobias, 2013. "The European Commission's Scoreboard of Macroeconomic Imbalances: The impact of preferences on an early warning system," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80028, Verein für Socialpolitik / German Economic Association.
  5. Makram El-Shagi & Tobias Knedlik & Gregor von Schweinitz, 2012. "Predicting Financial Crises: The (Statistical) Significance of the Signals Approach," IWH Discussion Papers 3, Halle Institute for Economic Research.
  6. Makram El-Shagi & Axel Lindner & Gregor von Schweinitz, 2014. "Real Effective Exchange Rate Misalignment in the Euro Area: A Counterfactual Analysis," IWH Discussion Papers 6, Halle Institute for Economic Research.
  7. Dermot Hodson, 2013. "The Eurozone in 2012: ‘Whatever It Takes to Preserve the Euro'?," Journal of Common Market Studies, Wiley Blackwell, vol. 51, pages 183-200, 09.
  8. Makram El-Shagi & Gregor von Schweinitz, 2012. "Qual VAR Revisited: Good Forecast, Bad Story," IWH Discussion Papers 12, Halle Institute for Economic Research.

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