Arbeitspapier
Forecasting expected and unexpected losses
Extending a standard credit-risk model illustrates that a single factor can drive both expected losses and the extent to which they may be exceeded in extreme scenarios, ie "unexpected losses." This leads us to develop a framework for forecasting these losses jointly. In an application to quarterly US data on loan charge-offs from 1985 to 2019, we find that financial-cycle indicators - notably, the debt service ratio and credit-to-GDP gap - deliver reliable real-time forecasts, signalling turning points up to three years in advance. Provisions and capital that reflect such forecasts would help reduce the procyclicality of banks' loss-absorbing resources.
- ISBN
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978-952-323-358-4
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Finland Research Discussion Papers ; No. 18/2020
- Classification
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Wirtschaft
Financial Forecasting and Simulation
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Financial Institutions and Services: Government Policy and Regulation
- Subject
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Loss rate forecasts
Cyclical turning points
Expected loss provisioning
Bank capital
- Event
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Geistige Schöpfung
- (who)
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Juselius, Mikael
Tarashev, Nikola A.
- Event
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Veröffentlichung
- (who)
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Bank of Finland
- (where)
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Helsinki
- (when)
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2020
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
This object is provided by:
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ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Juselius, Mikael
- Tarashev, Nikola A.
- Bank of Finland
Time of origin
- 2020
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