Macroeconomic imbalance procedure (MIP) scoreboard indicators and their predictive strength of ?multidimensional crises?
DOI:
https://doi.org/10.24136/eq.2020.001Keywords:
macroeconomic imbalance procedure, economic crisis, multidimensional crisis, ordered probit modelAbstract
Research background: The evaluation of the predictive strength of MIP indicators in relation to crises is extremely important for the process of coordinating the economic policies of the EU countries. MIP is one of the pillars of the economic crisis prevention procedure. Predictive power of individual indicators has not been tested before their introduction.
Purpose of the article: Evaluation of the predictive strength of fourteen MIP indicators in relation to multidimensional crises in the EU countries.
Methods: We used ordered probit model to test the ability of MIP indicators to correctly predict episodes of ?multidimensional crises? (as defined by the authors) in the period between 2008 and 2017 in all EU Member States.
Findings & Value added: We defined ?multidimensional crises?, combining several negative phenomena into one limited dependent variable. This work is also novel in its application of probit regression to test the predictive strength of MIP indicators with an ordered probit model. We identified five MIP variables which were statistically significant in predicting ?multidimensional crises? for all EU countries: net international investment position, nominal unit labour cost index, house price index, private sector credit flow and general government gross debt. Other variables turned out to be less important or not effective in crises prediction.
Downloads
References
Aldasoro, I., Borio, C., & Drehmann, M. (2018). Early warning indicators of banking crises: expanding the family. BIS Quarterly Review, March.
View in Google Scholar
Beck, K. (2013). Determinants of business cycles synchronization in the European Union and the Euro Area. Equilibrium. Quarterly Journal of Economics and Economic Policy, 8(4). doi: 10.12775/equil.2013.025. DOI: https://doi.org/10.12775/EQUIL.2013.025
View in Google Scholar
Beck, K. (2019). What drives business cycle synchronization? BMA results from the European Union. Baltic Journal of Economics, 19(2). doi: 10.1080/1406 099x.2019.1652393. DOI: https://doi.org/10.1080/1406099X.2019.1652393
View in Google Scholar
Borio, C., & Drehmann, M. (2009). Assessing the risk of banking crises - revisited. BIS Quarterly Review, March.
View in Google Scholar
Boysen-Hogrefe, J., Jannsen, N., Plödt, M., & Schwarzmüller, T. (2015). An empirical evaluation of macroeconomic surveillance in the European Union. Kiel Working Paper (Vol. 2014). doi: 10.1111/j.1467-6346.2007.00779.x. DOI: https://doi.org/10.1111/j.1467-6346.2007.00779.x
View in Google Scholar
Catão, L. A. V, & Milesi-Ferretti, G. M. (2014). External liabilities and crises. Journal of International Economics, 94. doi: 10.1016/j.jinteco. 2014.05.003. DOI: https://doi.org/10.1016/j.jinteco.2014.05.003
View in Google Scholar
Christofides, C., Eicher, T. S., & Papageorgiou, C. (2016). Did established early Warning Signals predict the 2008 crises? European Economic Review, 81. doi: https://doi.org/10.1016/j.euroecorev.2015.04.004. DOI: https://doi.org/10.1016/j.euroecorev.2015.04.004
View in Google Scholar
Claessens, S., & Kose, M. A. (2013). Financial crises: explanations, types, and implications. IMF Working Paper, 28. DOI: https://doi.org/10.2139/ssrn.2295201
View in Google Scholar
Crockett, A. (1996). The theory and practice of financial stability. Economist, 144(4). doi: https://doi.org/10.1007/BF01371939. DOI: https://doi.org/10.1007/BF01371939
View in Google Scholar
Csortos, O., & Szalai, Z. (2014). Early warning indicators: financial and macroeconomic imbalances in Central and Eastern European countries. MNB Working Papers, 2.
View in Google Scholar
De Scheemaekere, X., Oosterlinck, K., & Szafarz, A. (2015). Identifying economic crises: insights from history. Financial History Review, 22(1). doi: 10.1017 /S0968565015000025. DOI: https://doi.org/10.1017/S0968565015000025
View in Google Scholar
Domonkos, T., Ostrihoň, F., Šikulová, I., & Širaňová, M. (2017). Analysing the relevance of the MIP scoreboard’s indicators. National Institute Economic Review, 239(1). doi: 10.1177/002795011723900112. DOI: https://doi.org/10.1177/002795011723900112
View in Google Scholar
ECB (2010). The “great inflation”: lessons for monetary policy. Monthly Bulletin, May.
View in Google Scholar
Efstathiou, K., & Wolff, G. (2018). Is the European Semester effective and useful? Bruegel Policy Contribution, 09. Retrieved form http://bruegel.org/wp-content/uploads/2018/06/PC-09_2018_2.pdf.
View in Google Scholar
Erhart, S., Becker, W., & Saisana, M. (2018). The macroeconomic imbalance procedure - from the scoreboard and thresholds to the decisions. Publications Office of the EU. doi: https://doi.org/10.2760/038148.
View in Google Scholar
European Commission (2011). EU economic governance “Six Pack” - state of play. 28 September (Issue September 2010). http://europa.eu/rapid/press-release_MEMO-11-647_en.htm.
View in Google Scholar
European Commission (2012). Scoreboard for the surveillance of macroeconomic imbalances. European Economy Occasional Papers, 92. doi: 10.2765/20196.
View in Google Scholar
Frankel, J. A., & Rose, A. K. (1996). Currency crashes in emerging markets: an empirical treatment. International Finance Discussion Papers , Board of Governors of the Federal Reserve System (U.S.), 534. DOI: https://doi.org/10.17016/IFDP.1996.534
View in Google Scholar
Gourinchas, P. O., & Obstfeld, M. (2011). Stories of the twentieth century for the twenty-first. American Economic Journal: Macroeconomics, 4(1). doi: 10.1257/mac.4.1.226. DOI: https://doi.org/10.1257/mac.4.1.226
View in Google Scholar
Greene, W. H. (2003). Econometric analysis. Pearson Education, Inc.
View in Google Scholar
IMF (2009). Balance of payments and international investment position manual. DOI: https://doi.org/10.1057/ukbp.2009.9
View in Google Scholar
Kaminsky, G. (1998). Currency and banking crises: the early warnings of distress. International Finance Discussion Papers , Board of Governors of the Federal Reserve System (U.S.), 629. DOI: https://doi.org/10.17016/IFDP.1998.629
View in Google Scholar
Kaminsky, G., Lizondo, S., & Reinhart, C. M. (1998). Leading indicators of currency crises. IMF Staff Papers, 45(1). DOI: https://doi.org/10.2307/3867328
View in Google Scholar
Knedlik, T. (2014). The impact of preferences on early warning systems - the case of the European Commission’s Scoreboard. European Journal of Political Economy, 34(1174). doi: 10.1016/j.ejpoleco.2014.01.008. DOI: https://doi.org/10.1016/j.ejpoleco.2014.01.008
View in Google Scholar
Kološta, S., Kráľ, P., & Flaška, F. (2018). Alternative measures of macroeconomic imbalances in the EU – design and verification. E+M Ekonomie a Management, 22(1). doi: 10.15240/tul/001/2019-1-003. DOI: https://doi.org/10.15240/tul/001/2019-1-003
View in Google Scholar
Laeven, L., & Valencia, F. (2012). Systemic banking crises database: an update. IMF Working Paper, WP/12/163. DOI: https://doi.org/10.5089/9781475505054.001
View in Google Scholar
Lo Duca, M., Koban, A., Basten, M., Bengtsson, E., Klaus, B., Kusmierczyk, P., Lang, J., Detken, C., & Peltonen, T. (2017). A new database for financial crises in European countries. Occasional Paper Series, 13. doi: 10.2849/119019. DOI: https://doi.org/10.2139/ssrn.4033025
View in Google Scholar
Mishkin, F. S. (2011a). Monetary policy strategy: lessons from the crisis. NBER Working Paper Series, 16755. DOI: https://doi.org/10.3386/w16755
View in Google Scholar
Mishkin, F. S. (2011b). Over the cliff: from the subprime to the global financial crisis. Journal of Economic Perspectives, 25(1). doi: 10.1257/jep.25.1.49. DOI: https://doi.org/10.1257/jep.25.1.49
View in Google Scholar
Mızrak, F., & Yüksel, S. (2019). Significant determiners of Greek debt crisis: a comparative analysis with Probit and MARS approaches. International Journal of Finance & Banking Studies, 8(3). doi: 10.20525/ijfbs.v8i3.834. DOI: https://doi.org/10.20525/ijfbs.v8i3.834
View in Google Scholar
Oesterreichische Nationalbank (2001). Financial stability report 2.
View in Google Scholar
Osborne, J. W. (2015). Best practices in logistic regression. SAGE Publications Ltd. doi: 10.4135/9781483399041. DOI: https://doi.org/10.4135/9781483399041
View in Google Scholar
Regulation (EU) No 1176/2011 of the European Parliament and of the Council of 16 November 2011 on the prevention and correction of macroeconomic imbalances. (2011). Official Journal of the European Union, 2011(1176).
View in Google Scholar
Reinhart, C. M., & Rogoff, K. S. (n.d.). Dates for Banking Crises, Currency Crashes, Sovereign Domestic or External Default (or Restructuring), Inflation Crises, and Stock Market Crashes (Varieties). https://www.carmenreinhart.com/data/browse-by-topic/topics/7/.
View in Google Scholar
Reinhart, C. M., & Rogoff, K. S. (2009). The aftermath of financial crises. American Economic Review, 99(2). doi: 10.1257/aer.99.2.466. DOI: https://doi.org/10.1257/aer.99.2.466
View in Google Scholar
Siranova, M., & Radvanský, M. (2018). Performance of the macroeconomic imbalance procedure in light of historical experience in the CEE region. Journal of Economic Policy Reform, 21(4). doi: 10.1080/17487870.2017.1364642. DOI: https://doi.org/10.1080/17487870.2017.1364642
View in Google Scholar
Statistical Annex of Alert Mechanism Report 2018. (2017). Commission Staff Working Document (Issue SWD(2017) 661 final).
View in Google Scholar
Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data. Cambridge, MA, London: The MIT Press.
View in Google Scholar
