IDEAS home Printed from https://ideas.repec.org/p/ecb/ecbwps/20141712.html
   My bibliography  Save this paper

Signalling fiscal stress in the euro area - a country-specific early warning system

Author

Listed:
  • Hernández de Cos, Pablo
  • Nickel, Christiane
  • Koester, Gerrit
  • Moral-Benito, Enrique

Abstract

The sovereign debt crisis in the euro area has increased the interest in early warning indicators, with the aim to indicate the build?up of fiscal stress early on and to facilitate crisis prevention by a timely counteraction of fiscal and macroeconomic policies. This paper presents possible improvements to enhance existing early warning indicators for fiscal stress, especially for the euro area. We show that a country?specific approach could strongly increase the signalling power of early warning systems. Finally we draw policy conclusions for the setting?up and application of a system of early warning indicators for fiscal stress. JEL Classification: E62, E65, E66, H62, H63, F34

Suggested Citation

  • Hernández de Cos, Pablo & Nickel, Christiane & Koester, Gerrit & Moral-Benito, Enrique, 2014. "Signalling fiscal stress in the euro area - a country-specific early warning system," Working Paper Series 1712, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20141712
    Note: 166869
    as

    Download full text from publisher

    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1712.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andrew Berg & Eduardo Borensztein & Catherine Pattillo, 2005. "Assessing Early Warning Systems: How Have They Worked in Practice?," IMF Staff Papers, Palgrave Macmillan, vol. 52(3), pages 1-5.
    2. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
    3. Bertrand Candelon & Elena-Ivona Dumitrescu & Christophe Hurlin, 2012. "How to Evaluate an Early-Warning System: Toward a Unified Statistical Framework for Assessing Financial Crises Forecasting Methods," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(1), pages 75-113, April.
    4. van den Berg, Jeroen & Candelon, Bertrand & Urbain, Jean-Pierre, 2008. "A cautious note on the use of panel models to predict financial crises," Economics Letters, Elsevier, vol. 101(1), pages 80-83, October.
    5. Katia Berti & Matteo Salto & Matthieu Lequien, 2012. "An early-detection index of fiscal stress for EU countries," European Economy - Economic Papers 2008 - 2015 475, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    6. Bussiere, Matthieu & Fratzscher, Marcel, 2006. "Towards a new early warning system of financial crises," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 953-973, October.
    7. Mr. Axel Schimmelpfennig & Nouriel Roubini & Paolo Manasse, 2003. "Predicting Sovereign Debt Crises," IMF Working Papers 2003/221, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Dufrénot, Gilles & Gente, Karine & Monsia, Frédia, 2016. "Macroeconomic imbalances, financial stress and fiscal vulnerability in the euro area before the debt crises: A market view," Journal of International Money and Finance, Elsevier, vol. 67(C), pages 123-146.
    2. Martin Bruns & Tigran Poghosyan, 2018. "Leading indicators of fiscal distress: evidence from extreme bounds analysis," Applied Economics, Taylor & Francis Journals, vol. 50(13), pages 1454-1478, March.
    3. Valencia, Oscar & Parra, Diego A. & Díaz, Juan Camilo, 2022. "Assessing Macro-Fiscal Risk for Latin American and Caribbean Countries," IDB Publications (Working Papers) 12482, Inter-American Development Bank.
    4. Valencia, Oscar & Gamboa-Arbeláez, Juliana & Sánchez, Gustavo, 2025. "Fiscal adjustments and the asymmetric effect of oil shocks," Energy Economics, Elsevier, vol. 144(C).
    5. Tóth G., Csaba, 2014. "The Forecasting Capacity of Indicators Measuring Budget Sustainability," Public Finance Quarterly, Corvinus University of Budapest, vol. 59(4), pages 511-528.
    6. Honda, Jiro & Tapsoba, René & Issifou, Ismael, 2022. "When do we repair the roof? Insights from responses to fiscal crisis early warning signals," International Economics, Elsevier, vol. 172(C), pages 349-367.
    7. Stéphanie Pamies Sumner & Katia Berti, 2017. "A Complementary Tool to Monitor Fiscal Stress in European Economies," European Economy - Discussion Papers 049, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    8. Magkonis, Georgios & Tsopanakis, Andreas, 2016. "The financial and fiscal stress interconnectedness: The case of G5 economies," International Review of Financial Analysis, Elsevier, vol. 46(C), pages 62-69.
    9. Tai-Hock Kuek & Chin-Hong Puah & M. Affendy Arip, 2019. "Predicting Financial Vulnerability in Malaysia: Evidence From the Signals Approach," Research in World Economy, Research in World Economy, Sciedu Press, vol. 10(3), pages 89-98, December.
    10. Barbara Jarmulska, 2022. "Random forest versus logit models: Which offers better early warning of fiscal stress?," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(3), pages 455-490, April.
    11. Cláudia Braz & João Amador & Lara Wemans & Maria Manuel Campos & Sharmin Sazedj, 2016. "Public debt sustainability:Methodologies and debates in European institutions," Working Papers o201601, Banco de Portugal, Economics and Research Department.
    12. Krishanu Pradhan, 2019. "Analytical Framework for Fiscal Sustainability: A Review," Review of Development and Change, , vol. 24(1), pages 100-122, June.
    13. Jorge M. Uribe, 2023. ""Fiscal crises and climate change"," IREA Working Papers 202303, University of Barcelona, Research Institute of Applied Economics, revised Feb 2023.
    14. Michele Lanotte & Giacomo Manzelli & Anna Maria Rinaldi & Marco Taboga & Pietro Tommasino, 2016. "Easier said than done? Reforming the prudential treatment of banks� sovereign exposures," Questioni di Economia e Finanza (Occasional Papers) 326, Bank of Italy, Economic Research and International Relations Area.
    15. Tóth G., Csaba, 2017. "A nemzeti költségvetési szabályok elterjedése és hatása Európában [The spread of national fiscal rules and their effect in Europe]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1119-1147.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Honda, Jiro & Tapsoba, René & Issifou, Ismael, 2022. "When do we repair the roof? Insights from responses to fiscal crisis early warning signals," International Economics, Elsevier, vol. 172(C), pages 349-367.
    2. Candelon, Bertrand & Dumitrescu, Elena-Ivona & Hurlin, Christophe, 2014. "Currency crisis early warning systems: Why they should be dynamic," International Journal of Forecasting, Elsevier, vol. 30(4), pages 1016-1029.
    3. Casu, Barbara & Clare, Andrew & Saleh, Nashwa, 2011. "Towards a new model for early warning signals for systemic financial fragility and near crises: an application to OECD countries," MPRA Paper 37043, University Library of Munich, Germany.
    4. Ciarlone, Alessio & Trebeschi, Giorgio, 2005. "Designing an early warning system for debt crises," Emerging Markets Review, Elsevier, vol. 6(4), pages 376-395, December.
    5. Miss Gabriela Dobrescu & Iva Petrova & Nazim Belhocine & Mr. Emanuele Baldacci, 2011. "Assessing Fiscal Stress," IMF Working Papers 2011/100, International Monetary Fund.
    6. Daniela Bragoli & Piero Ganugi & Giancarlo Ianulardo, 2013. "Gini’s transvariation analysis: an application on financial crises in developing countries," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 40(1), pages 153-174, February.
    7. Markus Holopainen & Peter Sarlin, 2015. "Toward robust early-warning models: A horse race, ensembles and model uncertainty," Papers 1501.04682, arXiv.org, revised Apr 2016.
    8. Sondermann, David & Zorell, Nico, 2019. "A macroeconomic vulnerability model for the euro area," Working Paper Series 2306, European Central Bank.
    9. Detken, Carsten & Peltonen, Tuomas A. & Schudel, Willem & Behn, Markus, 2013. "Setting countercyclical capital buffers based on early warning models: would it work?," Working Paper Series 1604, European Central Bank.
    10. Ari, Ali, 2012. "Early warning systems for currency crises: The Turkish case," Economic Systems, Elsevier, vol. 36(3), pages 391-410.
    11. Martin Bruns & Tigran Poghosyan, 2018. "Leading indicators of fiscal distress: evidence from extreme bounds analysis," Applied Economics, Taylor & Francis Journals, vol. 50(13), pages 1454-1478, March.
    12. Alessio Ciarlone & Giorgio Trebeschi, 2006. "A Multinomial Approach to Early Warning Systems for Debt Crises," Temi di discussione (Economic working papers) 588, Bank of Italy, Economic Research and International Relations Area.
    13. Boysen-Hogrefe, Jens & Gern, Klaus-Jürgen & Groll, Dominik & Jannsen, Nils & Kooths, Stefan & Plödt, Martin & van Roye, Björn & Scheide, Joachim & Schwarzmüller, Tim, 2015. "Das europäische Verfahren zur Vermeidung und Korrektur makroökonomischer Ungleichgewichte: Auswertung der bisherigen Erfahrung und mögliche Reformansätze," Kieler Beiträge zur Wirtschaftspolitik 7, Kiel Institute for the World Economy (IfW Kiel).
    14. Schudel, Willem, 2015. "Shifting horizons: assessing macro trends before, during, and following systemic banking crises," Working Paper Series 1766, European Central Bank.
    15. Wang, Peiwan & Zong, Lu, 2023. "Does machine learning help private sectors to alarm crises? Evidence from China’s currency market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 611(C).
    16. Cipollini, A. & Kapetanios, G., 2009. "Forecasting financial crises and contagion in Asia using dynamic factor analysis," Journal of Empirical Finance, Elsevier, vol. 16(2), pages 188-200, March.
    17. Mohammad Karimi & Marcel‐Cristian Voia, 2019. "Empirics of currency crises: A duration analysis approach," Review of Financial Economics, John Wiley & Sons, vol. 37(3), pages 428-449, July.
    18. Cumperayot, Phornchanok & Kouwenberg, Roy, 2013. "Early warning systems for currency crises: A multivariate extreme value approach," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 151-171.
    19. Tjeerd M. Boonman & Jan P. A. M. Jacobs & Gerard H. Kuper & Alberto Romero, 2019. "Early Warning Systems for Currency Crises with Real-Time Data," Open Economies Review, Springer, vol. 30(4), pages 813-835, September.
    20. Petr Hájek & Michal Střižík & Pavel Praks & Petr Kadeřábek, 2009. "Možnosti využití přístupu latentní sémantiky při předpovídání finančních krizí [Possibilities of Financial Crises Forecasting with Latent Semantic Indexing]," Politická ekonomie, Prague University of Economics and Business, vol. 2009(6), pages 754-768.

    More about this item

    Keywords

    debt management; deficit surplus; fiscal policy; general outlook and conditions; international lending and debt problems; sovereign debt; studies of particular policy episodes;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20141712. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Official Publications (email available below). General contact details of provider: https://edirc.repec.org/data/emieude.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.