Template-type: ReDIF-Paper 1.0
Author-Name: Dr. Terhi Jokipii
Author-Name-First: Terhi
Author-Name-Last: Jokipii
Author-Person:  pjo301
Author-Name: Dr. Reto Nyffeler
Author-Name-First: Reto
Author-Name-Last: Nyffeler
Author-Person: pny49
Author-Name: Stéphane Riederer
Author-Name-First: Stéphane
Author-Name-Last: Riederer
Author-Person: pri309
Title: Exploring BIS credit-to-GDP gap critiques: the Swiss case
Abstract: A growing body of literature has highlighted two important caveats to the credit-to-GDP gap as advocated by the Bank for International Settlements (BIS). The first relates to the approach used to normalise credit (i.e., dividing nominal credit by GDP). In this regard, critics have argued that a normalised measure of credit runs the risk of being affected by GDP movements that may or may not be relevant. The second relates to the use of the Hodrick-Prescott (HP) filter to estimate the gap's trend component. In this regard, critics have emphasised several measurement problems associated with using the HP filter. In this paper, we assess the relevance of these critiques for Switzerland. While we find no compelling evidence suggesting a need to deviate from using the BIS gap as a reliable excess credit measure, our findings do emphasise the need to interpret its signal with caution, particularly during long-lasting boom phases and subsequent bust phases. In these situations in particular, authorities should strengthen their decision-making frameworks with additional credit relevant indicators.
Length: 25 pages
Creation-Date: 2020
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2020/working_paper_2020_19
File-Format: text/html
Number: 2020-19
Classification-JEL: E61, E44, E51, G01, G21
Keywords: BIS gap, credit-to-GDP, macroprudential policy, HP filter
Handle: RePEc:snb:snbwpa:2020-19