Chapter 12: Credit-to-GDP Gaps in Real Time: Correcting Indicators for More Reliability in Policy Decision-Making
The author states that the views presented in this paper are those of the author and do not necessarily represent the institution the author works at. This chapter was written at the time the author was working for Croatian National Bank, Zagreb, Croatia.
Countercyclical capital buffer (CCyB) is an essential instrument of macroprudential policy. Over the last couple of years, many studies have dealt with finding adequate indicators of credit activity monitored for CCyB calibration purposes. The credit-to-GDP gap is widely used and recognized as the leading indicator of credit dynamics for CCyB decision-making. Research and applications in practice regarding the stability of the credit-to-GDP gap are still lacking today. This stability refers to the end-point problems within the statistical filtering part of the analysis and problems with the GDP volatility, especially during crises, such as COVID-19. This chapter focuses on several practical approaches to correcting the credit-to-GDP gap as the primary indicator of credit dynamics in real time. Moreover, the chapter deals with possible corrections of the credit-to-GDP gap. The solutions allow for lower volatility of indicators over time so that the decision-maker can use stable signals.
