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Banking Crises in Emerging Economies: Can Credit Variables Work as Early Warnings?

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  • Martina Jasova

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)

Abstract

This paper explores the role of private credit variables as early warning indicators (EWIs) of banking crises in context of emerging economies. The performance is evaluated by using receiver operating characteristics (ROC) curve and area under the curve (AUC) on long series on credit to the private non-financial sector. The results suggest that credit-to-GDP gap as proposed by Basel III may not be the best performing indicator to signal future banking distress in case of emerging economies. Credit growth outperforms credit-to-GDP gap in all time horizon. These findings are particularly important as they challenge the literature published on EWIs in emerged economies and highlight the need to use complementary indicators and multivariate analysis especially in the environment of emerging economies.

Suggested Citation

  • Martina Jasova, 2015. "Banking Crises in Emerging Economies: Can Credit Variables Work as Early Warnings?," Working Papers IES 2015/27, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2015.
    • Handle: RePEc:fau:wpaper:wp2015_27
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    File URL: http://ies.fsv.cuni.cz/sci/publication/show/id/5409/lang/cs
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    More about this item

    Keywords

    Early warning indicators; credit-to-GDP; countercyclical capital buffer; emerging markets; ROC; area under the curve;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G01 - Financial Economics - - General - - - Financial Crises
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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