Template-Type: ReDIF-Paper 1.0

Author-Name: Alexey Ponomarenko
Author-Email: PonomarenkoAA@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation

Author-Name: Stas Tatarintsev
Author-Email: TatarintsevSA@cbr.ru
Author-Workplace-Name: Bank of Russia, Russian Federation


Title: Incorporating financial development indicators into early warning systems

Abstract: We set up an early warning system for financial crises based on the Random Forrest approach. 
We use a novel set of predictors that comprises financial development indicators (e.g. levels of credit to GDP ratio) 
in addition to conventional imbalances measures (e.g. credit gaps). The evaluation of the model is 
conducted using a three-step procedure (i.e. training, validation and testing sub-samples). 
The results indicate that combining financial imbalances and financial development indicators helps to improve 
the out-of-sample accuracy of the early warning system


Length: 22 pages
Creation-Date: 2020-07
Revision-Date:
Publication-Status:
File-URL: https://www.cbr.ru/Content/Document/File/111729/wp-58_e.pdf
File-Format: Application/pdf
File-Function:
Number: wps58
Classification-JEL: C40, C52, G01, E44
Keywords: Early warning indicators, financial crisis, financial development, credit gap, random forest
Handle:RePEc:bkr:wpaper:wps58