The Credit-to-GDP gap and Countercyclical Capital Buffers: Questions and Answers

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Date Published 2014
Primary Author Mathias Drehmann and Kostas Tsatsaronis
Other Authors
Theme Regulation and Supervision of Housing Finance Systems


The purpose of this article is to review these criticisms in the context of the role of the indicator within the CCB framework. In what follows, we address each area of criticism in a separate section. We argue that many criticisms, while factually accurate, misinterpret the role of the credit gap as a common reference guide for CCB decisions. We also review and extend the evidence on the reliability of the credit gap as an EWI for banking crises, which is essential for an instrument aimed at protecting banks from the build-up of aggregate vulnerabilities. We also discuss some of the practical measurement problems that arise in the calculation of the credit gap.

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