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Measuring the credit gap: a forecast combination approach

Author

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  • N. Kundan Kishor

    (University of Wisconsin-Milwaukee)

  • Nam Nguyen

    (Wintrust Bank)

Abstract

This paper proposes a new approach to calculating the credit gap: the deviation of the credit-to-GDP ratio from its long-run trend. Our method weights credit gap measures from different decomposition methods based on their out-of-sample forecasting performance. The results show that this weighted approach to estimating the credit gap outperforms other popular trend-cycle decomposition methods in predicting changes in the credit-to-GDP ratio. Furthermore, we also show that this combined credit gap measure can help mitigate the endpoint problem that is associated with conventional measures of credit gap.

Suggested Citation

  • N. Kundan Kishor & Nam Nguyen, 2025. "Measuring the credit gap: a forecast combination approach," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 161(1), pages 1-12, December.
    • Handle: RePEc:spr:sjecst:v:161:y:2025:i:1:d:10.1186_s41937-025-00133-w
    DOI: 10.1186/s41937-025-00133-w
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