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Introducing a composite indicator of cyclical systemic risk in Croatia: possibilities and limitations

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  • Tihana Skrinjaric

    (Croatian National Bank, Zagreb, Croatia)

Abstract

This research deals with several approaches to constructing a composite indicator of cyclical systemic risk accumulation with a specific focus on Croatia. Such indicators are important in macroprudential policymaking, in order to track the position of the economy in the financial cycle. Moreover, the countercyclical capital buffer (CCyB) depends on the timely and accurate estimation of cyclical risk accumulation. The credit gap as defined in the BCBS (Basel Committee on Banking Supervision) and the ESRB (European Systemic Risk Board) guidance and recommendation has shown many flaws in practice. Thus, there is a need for improvement of the methodology. That is why this paper deals with the advantages and shortfalls of existing composite indicators of cyclical systemic risks and the possibilities of introducing them in Croatia. This research contributes to a critical overview of the methodological approaches, with suggestions for their improvement, focusing particularly on the specifics of Croatian data.

Suggested Citation

  • Tihana Skrinjaric, 2023. "Introducing a composite indicator of cyclical systemic risk in Croatia: possibilities and limitations," Public Sector Economics, Institute of Public Finance, vol. 47(1), pages 1-39.
    • Handle: RePEc:ipf:psejou:v:47:y:2023:i:1:p:1-39
    DOI: 10.3326/pse.47.1.1
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    More about this item

    Keywords

    cyclical risk; macroprudential policy; composite indicator; systemic risk;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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