- May 17, 2019
- May 13, 2019
- Apr. 26, 2019
Home > Research and Studies > Bank of Japan Working Paper Series, Review Series, and Research Laboratory Series > Bank of Japan Working Paper Series 2011 > (Research paper) The Financial Cycle Indexes for Early Warning Exercise
This paper introduces financial cycle indexes and uses them in an early warning exercise. The indexes are based on the traditional theory of business cycles. Juglar cycles are deduced from a number of financial indicators, categorized as leading and lagging indicators, and aggregated into leading and lagging indexes. We constructed Japanese financial cycle indexes and found that they warn of the current global financial crisis about a year in advance. However, the result should be interpreted with caution, since the indexes fail to take into consideration the uncertainty surrounding real-time problems and the potential delays that may be caused by policy judgment. As a solution, we propose a scheme to forecast financial cycle indexes. According to the test results based on the Japanese data, our scheme gives advance warning of the ongoing global financial crisis.
We would like to thank the staff of the Bank of Japan for their helpful comments. The opinions expressed here, as well as any remaining errors, are those of the authors and should not be ascribed to the Bank of Japan or the Financial System and Bank Examination Department.
Papers in the Bank of Japan Working Paper Series are circulated in order to stimulate discussion and comments. Views expressed are those of authors and do not necessarily reflect those of the Bank.
If you have any comment or question on the working paper series, please contact each author.
When making a copy or reproduction of the content for commercial purposes, please contact the Public Relations Department (firstname.lastname@example.org) at the Bank in advance to request permission. When making a copy or reproduction, the source, Bank of Japan Working Paper Series, should explicitly be credited.