A new SEACEN Working Paper by Özer Karagedikli and Ole Rummel titled “Weighing up the Credit-to-GDP gap: A cautionary note” is now available. The authors take a look at the weights attached to the trend estimates in the way the BIS calculates the credit-to-GDP trends/gaps, which are then used in the countercyclical capital buffer calculations proposed by the Basel Committee on Banking Supervision. By using financial crises as a laboratory the authors argue that these trends have some unwanted properties. In particular:
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