Real-Time Determination of Credit Cycle Phases in Emerging Markets

We test the ability of early warning indicators that appear in the literature to predict credit cycle peaks in a cross-section of emerging markets. Our results confirm that the standard credit gap indicator performs satisfactorily. The robustness of real-time credit cycle determination may potentially (and with a risk of overfitting the data) be improved by simultaneously monitoring GDP growth, banks' non-core liabilities, the financial sector's value added and (to a lesser extent) the change in the debt service ratio