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Macroeconomic Imbalances as Indicators for Debt Crises in Europe

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  • Knedlik, Tobias
  • von Schweinitz, Gregor

Abstract

European authorities and scholars published proposals on which indicators of macroeconomic imbalances might be used to uncover risks for the sustainability of public debt in the European Union. We test the ability of four proposed sets of indicators to send early-warnings of debt crises using a signals approach for the study of indicators and the construction of composite indicators. We find that a broad composite indicator has the highest predictive power. This fact still holds true if equal weights are used for the construction of the composite indicator in order to reflect the uncertainty about the origin of future crises.

Suggested Citation

  • Knedlik, Tobias & von Schweinitz, Gregor, 2011. "Macroeconomic Imbalances as Indicators for Debt Crises in Europe," IWH Discussion Papers 12/2011, Halle Institute for Economic Research (IWH).
    • Handle: RePEc:zbw:iwhdps:iwh-12-11
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    More about this item

    Keywords

    macroeconomic surveillance; macroeconomic imbalances; economic governance; signals approach; European Union (EU); European Monetary Union (EMU); Makroökonomische Überwachung; makroökonomische Ungleichgewichte; wirtschaftspolitische Koordinierung; Europäische Union (EU); Europäische Währungsunion;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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