Research takes Bayesian approach to find early-warning indicators
Collaborative effort by economists from Austrian and German central banks
Excessive credit growth and high returns of bank stocks are the best early-warning indicators of financial crises, according to a discussion paper published by the Deutsche Bundesbank.
What predicts financial (in)stability? A Bayesian approach is authored by Judith Eidenberger, Benjamin Neudorfer and Michael Sigmund (all National Bank of Austria) and Ingrid Stein (Bundesbank).
The authors take a Bayesian approach to building early-warning indicators. They calculate the 1,000 most probable models
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