Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/251726 
Year of Publication: 
2022
Publisher: 
SSRN, Rochester
Abstract: 
Early warning indicators (EWIs) of banking crises should ideally be judged on how well they function in relation to the choice issue faced by macroprudential policymakers. Several practical features of this challenge are translated into statistical evaluation criteria, including difficulties measuring the costs and advantages of various policy interventions, as well as requirements for the timeliness and stability of EWIs. We analyze the balance panel of possible EWIs for six countries that have experienced currency crisis and banking crisis in recent times. Using possible early warning indicators, we evaluate the suitability of these EWIs in view of their predictive power and stability of signals. The paper observes that credit disbursements to non-financial sectors and central government provides stable signal about systemic risks. Further debt service ratio, inter bank rates and total reserves are also found to be useful in predicting these crisis. Lastly, the paper observes that linear combination of these indicators improves the predictive power of EWIs further.
Subjects: 
EWIs
ROC
area under the curve
shrinkage
JEL: 
G01
C40
G21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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