How to Predict Financial Stress? An Assessment of Markov Switching Models

Thibaut Duprey & Benjamin Klaus
This paper predicts phases of the financial cycle by using a continuous financial stress measure in a Markov switching framework. The debt service ratio and property market variables signal a transition to a high financial stress regime, while economic sentiment indicators provide signals for a transition to a tranquil state. Whereas the in-sample analysis suggests that these indicators can provide an early warning signal up to several quarters prior to the respective regime change, the...
This data repository is not currently reporting usage information. For information on how your repository can submit usage information, please see our documentation.