Leading indicators of financial stress in Croatia: a regime switching approach

Škrinjarić, Tihana

doi:10.3326/pse.47.2.3.

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Leading indicators of financial stress in Croatia: a regime switching approach

Tihana Škrinjarić*

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https://doi.org/10.3326/pse.47.2.3

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Table 1
Brief description of variables used in the study

Category	Variables	Transformations
Credit dynamics	Narrow and broad credit Narrow and broad credit-to-GDP ratio Household (HH) credit Non-financial corporations (NFC) credit HH credit-to-GDP ratio NFC credit-to-GDP ratio (nominal and real variants of credit)	1YG 1YC	A2YG A2YC	HP gap 25K 85K 125K 400K
Potential overvaluation of property prices	House price index (nominal and real) Price to rent ratio (nominal and real) Price to income ratio (nominal and real) Price to cost ratio (nominal and real) Construction work index ratio Indicator of overvaluation of property prices	1YG 1YC	A2YG A2YC	HP gap 1600 25K 85K 125K 400K
External imbalances	Gross external debt (GED) Net external debt (NED) GED-to-GDP ratio NED-to-GDP ratio Terms of trade Current account to GDP ratio Net export to GDP ratio	1YG 1YC	A2YG A2YC	HP gap 1600 25K 85K 125K 400K
Strength of bank balance sheets	Deposit to credit ratio Capital to assets ratio Assets to GDP ratio	1YG 1YC	A2YG A2YC	HP gap 1600 25K 85K 125K 400K
Private sector debt burden	Debt service ratio (household and nonfinancial corporations separately) Total debt to income ratio Total debt to gross operating surplus ratio	1YG 1YC	A2YG A2YC	HP gap 25K 85K 125K 400K
Mispricing of risks	Stock market index CROBEX HH credit interest rate margin⁸NFC credit interest rate margin Bank prudence indicator⁸	1YG 1YC	A2YG A2YC	HP gap 1600 25K 85K

Note: HP denotes the Hodrick-Prescott filter, 25K, 85K, 125K, and 400K denote that chosen smoothing parameter was equal to 25.600, 85.000, 125.000, and 400.000 in the HP filter, 1600 denotes the value of the smoothing parameter in HP filter. Narrow credit includes bank credits to households and the private sector, broad credit includes all credit institution claims on the private sector and the gross external debt of the private sector. 1YG, 1YC, A2YG, and A2YC denote one-year growth rate, one-year change, annualized 2-year growth rate, and annualized 2-year change respectively.

Source: CNB (2022).

Table 3
Significant coefficients, probability of transitioning from lower to higher risk regime (upper panel) and significant coefficients, probability of staying in the higher risk regime (lower panel)

Indicator	t-7	t-6	t-5	t-4
HPI 2y growth rate	0.187	0.164	0.152	0.163
HPI real, gap 25K	0.176	0.130	0.131	0.161
Capital/Assets, gap 1600	0.147	0.100	0.130	0.119
CNFP real 1y change	0.072	0.091	0.171	0.131
Basel gap, 25K	0.277	0.238	0.381	0.456
Broad credit 1y change	0.069	0.075	0.066	0.071
Broad credit real 1y change	0.046	0.050	0.044	0.047
Narrow credit gap, 125K	0.654	0.748	0.740	0.689
Narrow credit gap, 25K	0.740	0.833	0.836	0.777
Narrow credit gap, 400K	0.645	0.737	0.727	0.675
Narrow credit gap, 85K	0.663	0.757	0.754	0.705

CNFC 2y growth rate	0.128	0.139	0.156	0.147
H D-to-I 2y change	0.019	0.018	0.019	0.016
CNFC, 25K	0.185	0.181	0.187	0.163
P-to-Income, 400K	0.110	0.055	0.143	0.165
Deposits/Credit, 1600	0.019	0.018	0.020	0.023
HPI real 1y growth rate	0.149	0.150	0.177	0.187
P-to-I 2y growth rate	0.190	0.181	0.198	0.231
P-to-I real 2y growth rate	0.164	0.171	0.199	0.238
Narrow credit 1y growth rate	0.149	0.175	0.230	0.268
Narrow credit 2y growth rate	0.149	0.175	0.230	0.268
NX, cumsum	0.407	0.359	0.321	0.311
Net ext debt, 125K	0.332	0.310	0.404	0.332
Net ext debt, 25K	0.310	0.404	0.332	0.332
Net ext debt, 400K	0.332	0.310	0.404	0.332
Net ext debt, 85K	0.332	0.310	0.404	0.332
NX	0.327	0.291	0.301	0.392
HH 1y change	0.509	0.294	0.300	0.556

Note: 1600, 25K, 85K, 125K and 400K denote the value of the smoothing parameter in HP gap, in values of 1,600, 25,000, 85,000, 125,000 and 400,000 respectively. 1y and 2y are one and two years, CNFP is credit to nonfinancial corporations, HPI is house price index, Capital/Assets is the capital-to-assets ratio. t-4, t-5, t-6 and t-7 denote models that include indicator variables lagged for 4, 5, 6 and 7 quarters respectively. HH denotes credit to households, Net ext debt denotes net external debt, NX is net exports share in GDP, whereas NX cumsum is sum of net exports over 4 quarters share in sum of GDP over 4 quarters, P-to-I is the price to income ratio, HPI is house price index, Deposits/Credit denotes the deposit-to-credit ratio, P-to-Income is house price-to-income ratio, CNFC is credit to nonfinancial corporations, H D-to-I is household debt to income ratio.

Source: Author’s calculation.

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