Arbeitspapier

Early warning indicators: Financial and macroeconomic imbalances in Central and Eastern European countries

In this paper we apply the Early Warning System methodology to ten Central and Eastern European Countries to find useful sets of indicators which could predict macroeconomic and financial imbalances. We argue that finding such indicators is crucial in the current monetary policy framework because significant imbalances could build up without any sign of risk to price stability. We examine the stylised behaviour of the most important macroeconomic variables over the business cycle and select the most preferred indicator variables. Our methodology consists of choosing the most useful combination of variables in terms of false alarms and misses, taken as given the preferences of the decision maker in terms of committng various types of errors. We find, that a certain combination of the global financial variable, the real exchange rate, capital flows and credit is a plausible signal macroeconomic imbalances. The results suggest that although the above indicators should not be used mechanically, they could usefully complement analytical tools available to modern central banks.

Language
Englisch

Bibliographic citation
Series: MNB Working Papers ; No. 2014/2

Classification
Wirtschaft
Business Fluctuations; Cycles
Prices, Business Fluctuations, and Cycles: Forecasting and Simulation: Models and Applications
Financial Markets and the Macroeconomy
Central Banks and Their Policies
Subject
early warning indicators
signalling approach
macroeconomic stability
financial stability
monetary policy strategy

Event
Geistige Schöpfung
(who)
Csortos, Orsolya
Szalai, Zoltán
Event
Veröffentlichung
(who)
Magyar Nemzeti Bank
(where)
Budapest
(when)
2014

Handle
Last update
10.03.2025, 11:45 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Csortos, Orsolya
  • Szalai, Zoltán
  • Magyar Nemzeti Bank

Time of origin

  • 2014

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