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A New Measure of the Financial Cycle: Application to the Czech Republic

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  • Miroslav Plašil
  • Jakub Seidler
  • Petr Hlaváč

Abstract

The recent financial crisis has demonstrated the importance of the linkages between the financial sector and the real economy. This article proposes a suitable and easy-to-apply method for assessing the position of the economy in the financial cycle in order to identify emerging imbalances in a timely manner. The method utilizes a composite indicator, constructed by the authors, that combines variables representing risk perceptions in the financial sector and their reinforcing interactions over the financial cycle. The indicator is calibrated to capture the future credit losses of the Czech banking sector. This method can be used by policymakers for a wide range of policy decisions, including the setting of a countercyclical capital buffer.

Suggested Citation

  • Miroslav Plašil & Jakub Seidler & Petr Hlaváč, 2016. "A New Measure of the Financial Cycle: Application to the Czech Republic," Eastern European Economics, Taylor & Francis Journals, vol. 54(4), pages 296-318, July.
    • Handle: RePEc:mes:eaeuec:v:54:y:2016:i:4:p:296-318
    DOI: 10.1080/00128775.2016.1192950
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    Cited by:

    1. Vaclav Broz & Dominika Kolcunova & Simona Malovana & Lukas Pfeifer, 2018. "Risk-Sensitive Capital Regulation," Occasional Publications - Edited Volumes, Czech National Bank, edition 1, volume 16, number rb16/1 edited by Simona Malovana & Jan Frait, January.
    2. Zsuzsanna Hosszu & Gergely Lakos, 2022. "Early Warning Performance of Univariate Credit-to-GDP Gaps," MNB Occasional Papers 2022/142, Magyar Nemzeti Bank (Central Bank of Hungary).
    3. Miroslav Plasil, 2019. "The countercyclical capital buffer rate for covering the usual level of cyclical risks in the Czech Republic," Occasional Publications - Chapters in Edited Volumes,, Czech National Bank.
    4. Jan Hajek & Jan Frait & Miroslav Plasil, 2017. "The countercyclical capital buffer in the Czech Republic," Occasional Publications - Chapters in Edited Volumes, in: CNB Financial Stability Report 2016/2017, chapter 0, pages 106-114, Czech National Bank.
    5. Josef Sveda & Jiri Panos & Vojtech Siuda, 2023. "Modelling Risk-Weighted Assets: Looking Beyond Stress Tests," Working Papers 2023/15, Czech National Bank.

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