The unreliability of credit-to-GDP ratio gaps in real-time: Implications for countercyclical capital buffers
By Rochelle M. Edge, Ralf R. Meisenzahl. 2011
166 citations recorded by the source corpus.
Macroeconomists have long recognized that activity-gap measures are unreliable in real time and that this can present serious difficulties for stabilization policy. This paper investigates whether the credit-to-GDP ratio gap, which has been proposed as a reference point for accumulating countercyclical capital buffers, is subject to similar problems. We find that ex-post revisions to the U.S. credit-to-GDP ratio gap are sizable and as large as the gap itself, and that the main source of these revisions stems from the unreliability of end-of-sample estimates of the series' trend rather than from revised estimates of the underlying data. The paper considers the potential costs of gap mismeasurement. We find that the volume of lending that may incorrectly be curtailed is potentially large, although loan interest-rates appear to increase only modestly.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/1dfc01cbe56501aa6e149c0ea1b0151b7d3d0cc4
Citations in the corpus
- Learning from History: Volatility and Financial Crises (2016, unknown): “In addition, a higher gap could be due to either excessive credit growth or low output growth, meriting different policy responses (see, for instance Edge and Meisenzahl, 2011; Alessi and Detken, 2014; Bassett et al., 2015).”
- Operationalising the Countercyclical Capital Buffer: Indicator Selection, Threshold Identification and Calibration Options (2014, unknown): “While Edge and Meisenzahl (2011) show with US data that the gap is prone to a considerable ex post revision when new data become available, van Norden (2011) and Drehmann et al. (2011) show that this does not have consequences for the performance of the credit-to-GDP gap as an indicator.”
- Business, Housing and Credit Cycles (2018, unknown): “Edge and Meisenzahl (2011) replicate the approach of Orphanides and van Norden (2001) for the U.S. credit-to-GDP ratio and reach equivalent conclusions.”
- Evaluating early warning indicators of banking crises: Satisfying policy requirements (2014, unknown): “16 WP 421 Evaluating early warning indicators of banking crises: Satisfying policy requirements also been shown that data revisions, at least for credit and GDP series in the US, are not of first-order importance for our type of analysis (Edge and Meisenzahl (2011)). We circumvent both the problems ”