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Univariate and multivariate filters to measure the credit gap

Author

Listed:
  • Zsuzsanna Hosszú

    () (Magyar Nemzeti Bank (Central Bank of Hungary))

  • Gyöngyi Körmendi

    () (Magyar Nemzeti Bank (Central Bank of Hungary))

  • Bence Mérõ

    () (Magyar Nemzeti Bank (Central Bank of Hungary))

Abstract

Within the framework of the Basel III capital regulation, macroprudential authorities may order the accumulation of countercyclical capital buffers in the period when systemic risks are building up. According to recommendations, it is worth setting the size of the capital buffer on the basis of the magnitude of the credit-to-GDP ratio gap. Therefore, the time series of Hungary’s credit-to-GDP ratio is decomposed to trend and cyclical components (credit gap) using four trend filtering methods: univariate Hodrick–Prescott filter, univariate Christiano–Fitzgerald filter, univariate Beveridge–Nelson filter and multivariate Hodrick–Prescott filter. The decomposition was carried out separately for the household and corporate segments. Of the four methods, it is the results of the multivariate Hodrick–Prescott filter, which also uses the information content of other variables, that reflect experts’ assessment relating to developments in lending in Hungary the most. In addition, endpoint uncertainty was also the smallest in this case, i.e. the receipt of new data caused the smallest changes in the values estimated for previous periods here.

Suggested Citation

  • Zsuzsanna Hosszú & Gyöngyi Körmendi & Bence Mérõ, 2015. "Univariate and multivariate filters to measure the credit gap," MNB Occasional Papers 2015/118, Magyar Nemzeti Bank (Central Bank of Hungary).
  • Handle: RePEc:mnb:opaper:2015/118
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    References listed on IDEAS

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    1. Gergely Kiss & Márton Nagy & Balázs Vonnák, 2006. "Credit Growth in Central and Eastern Europe: Convergence or Boom?," MNB Working Papers 2006/10, Magyar Nemzeti Bank (Central Bank of Hungary).
    2. Robert Kelly & Kieran Mcquinn & Rebecca Stuart, 2011. "Exploring the Steady-State Relationship Between Credit and GDP for a Small Open Economy–The Case Of Ireland," The Economic and Social Review, Economic and Social Studies, vol. 42(4), pages 455-477.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    countercyclical capital buffer; credit gap; trend filtering method;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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