Early warning of financial stress events : a credit-regime-switching approach / by Fuchun Li and Hongyu Xiao.: FB3-5/2016-21E-PDF
We propose an early warning model for predicting the likelihood of a financial stress event for a given future time, and examine whether credit plays an important role in the model as a non-linear propagator of shocks. This propagation takes the form of a threshold regression in which a regime change occurs if credit conditions cross a critical threshold. The in-sample and out-of-sample forecasting performances are encouraging. In particular, the out-of-sample forecasting results suggest that the model based on the credit-regime-switching approach outperforms the benchmark models based on a linear regression and signal extraction approach across all forecasting horizons and all criteria considered.
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| Department/Agency | Bank of Canada. |
|---|---|
| Title | Early warning of financial stress events : a credit-regime-switching approach / by Fuchun Li and Hongyu Xiao. |
| Series title | Staff Working Paper, 1701-9397 ; 2016-21 |
| Publication type | Series - View Master Record |
| Language | [English] |
| Format | Electronic |
| Electronic document | |
| Note(s) | "April 2016." Includes bibliographical references. |
| Publishing information | [Ottawa] : Bank of Canada, 2016. |
| Author / Contributor | Li, Fuchun. Xiao, Hongyu. |
| Description | iii, 30 p. : fig., tables |
| Catalogue number |
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| Subject terms | Financial crisis Forecasting Statistical analysis Credit |