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Leading indicators of financial stress in Croatia: a regime switching approach

Author

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  • Tihana Skrinjaric

    (Bank of England, Stress Test Strategy Division, London, EC2R 6DA, United Kingdom)

Abstract
This research focuses on the prediction of the probability of (re)entering high financial stress (via a large set of cyclical risk accumulation indicators). The focus is placed on a specific single-country analysis to obtain answers to questions about which indicators are best in explaining the future probability of (re)entering a high-stress regime. This allows the policymaker to get a better focus on the best-performing variables. It is challenging to monitor a whole set of indicators of cyclical risk build-up; the results could bring into focus a smaller group of the essential variables. The contribution of this paper is in finding a set of indicators that help in forecasting financial stress, in terms of switching from one regime to another. The regime-switching models’ results indicate that some credit specifications, house price dynamics, and debt burden could be best monitored for the case of Croatian data.

Suggested Citation

  • Tihana Skrinjaric, 2023. "Leading indicators of financial stress in Croatia: a regime switching approach," Public Sector Economics, Institute of Public Finance, vol. 47(2), pages 205-232.
    • Handle: RePEc:ipf:psejou:v:47:y:2023:i:2:p:0-0
    DOI: 10.3326/pse.47.2.3
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    More about this item

    Keywords

    financial stress; macro-prudential policy; Regime-switching models; Croatia;
    All these keywords.

    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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