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Credit-To-Gdp Gap Computation Under Multivariate Hp Filter Methodology: The Case Of North Macedonia

Author

Listed:
  • Magdalena Petrovska

    (National Bank of the Republic of North Macedonia.)

  • Artan Sulejmani

    (National Bank of the Republic of North Macedonia.)

  • Elena Mucheva Mihajlovska

    (National Bank of the Republic of North Macedonia.)

Abstract

Unsustainable credit growth can signal systemic financial stress, potentially leading to crises and real-sector losses. The key gauges of over heatedness in the credit markets are the build-up of the credit-to-GDP ratio and its deviation from its long-term trend, the credit-to-GDP gap. When calculating the latter, the major methodological challenge is to develop a model capable of executing the most reliable trend-cycle decomposition. This study employs a multivariate Hodrick-Prescott (MVHP) approach that incorporates economic information in the trend extraction process. Our MVHP estimates suggest that the cyclical credit gap is relatively small in North Macedonia. This means that credit is generally growing close to its trend rate. The two-sided HP filter yields consistent results for the credit-to-GDP gap, while the one-sided version behaves unreliably, especially post-GFC. Given weak theoretical foundations, any gap measure should be viewed as a proxy.

Suggested Citation

  • Magdalena Petrovska & Artan Sulejmani & Elena Mucheva Mihajlovska, 2025. "Credit-To-Gdp Gap Computation Under Multivariate Hp Filter Methodology: The Case Of North Macedonia," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 16(2), pages 142-162, December.
    • Handle: RePEc:ris:utmsje:022221
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    Keywords

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    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G01 - Financial Economics - - General - - - Financial Crises
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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