Terhi Jokipii, Reto Nyffeler, Stéphane Riederer, 08 December 2020

 A growing body of literature has highlighted important flaws in the credit-to-GDP gap computed according to the BIS guidelines as a measure of excess credit for policy purposes. This column assesses the relevance of these critiques from the Swiss perspective. It finds no compelling evidence to suggest the need to deviate from using the BIS gap. However, authorities should be cautious in interpreting the gap’s signal, particularly during periods of large and strong GDP movements and during long-lasting boom phases and subsequent busts. Authorities should also consider strengthening their decision-making frameworks with additional credit relevant indicators.

Jon Danielsson, Marcela Valenzuela, Ilknur Zer, 26 March 2018

Reliable indicators of future financial crises are important for policymakers and practitioners. While most indicators consider an observation of high volatility as a warning signal, this column argues that such an alarm comes too late, arriving only once a crisis is already under way. A better warning is provided by low volatility, which is a reliable indication of an increased likelihood of a future crisis.

Events

CEPR Policy Research