Abstract:
What is the efficacy of credit boom dynamics in predicting financial crisis? Are credit booms dangerous for the sake of financial stability? Do credit booms increase the vulnerability of the banking and thus the financial sector? If so, does all credit booms, without distinction, matter? Or a discrimination in its main components may turn out to be necessary?
The aim is to answer the listed above questions and give a contribution in terms of macro-prudential policy in order to prevent banking crisis as they play a crucial role of "transmission" from the financial system to the real economy.
The work is structured in four main chapters.
In the first chapter, after highlighted the importance of the financial system and its development, a definition of financial (in)stability, is offered. In addition, an exhaustive investigation on the pathological event of this instability, namely a financial crisis, is carried out.
The second chapter presents a brief overview of the main tools designed so far in order to detect financial instability. A taxonomy of EWIs is offered.
The third chapter is devoted to the construction of the model. Starting from the preeminent paper of Schularick and Taylor (2012) the total bank credit to the PNFS variable and other credit-related variables are used to explain the behavior of EU country-specific banking indexes. Predicting these indexes become essential to detect financial stress events. In a final empirical exercise the HAR-RV model of Corsi (2008) is applied on the country-specific banking indices.
The fourth chapter reports the results of the model on the main EU countries, whereas the fifth chapter suggests some policy implications deriving from the preceding analysis.
The last chapter concludes.
