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Credit-to-GDP Gaps in Real Time: Correcting Indicators for More Reliability in Policy Decision-Making

In: Banking Resilience and Global Financial Stability

Author

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  • Tihana Škrinjarić

Abstract

Countercyclical capital buffer (CCyB) is an essential instrument of macroprudential policy. Over the last couple of years, many studies have dealt with finding adequate indicators of credit activity monitored for CCyB calibration purposes. The credit-to-GDP gap is widely used and recognized as the leading indicator of credit dynamics for CCyB decision-making. Research and applications in practice regarding the stability of the credit-to-GDP gap are still lacking today. This stability refers to the end-point problems within the statistical filtering part of the analysis and problems with the GDP volatility, especially during crises, such as COVID-19. This chapter focuses on several practical approaches to correcting the credit-to-GDP gap as the primary indicator of credit dynamics in real time. Moreover, the chapter deals with possible corrections of the credit-to-GDP gap. The solutions allow for lower volatility of indicators over time so that the decision-maker can use stable signals.

Suggested Citation

  • Tihana Škrinjarić, 2024. "Credit-to-GDP Gaps in Real Time: Correcting Indicators for More Reliability in Policy Decision-Making," World Scientific Book Chapters, in: Sabri Boubaker & Marwa Elnahass (ed.), Banking Resilience and Global Financial Stability, chapter 12, pages 317-346, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800614321_0012
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G2 - Financial Economics - - Financial Institutions and Services
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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