Transformations  in
Business & Economics

THE PREDICTIVE POWER OF CREDIT FLUCTUATIONS FOR ECONOMIC ACTIVITY IN CEE-3 COUNTRIES
Corina Saman

ABSTRACT. This study examine the predictive power of credit fluctuations for real economic activity in the CEE-3 (Central and Eastern European: the Czech Republic, Poland, and Hungary) countries over the period 1991-2016. It contributes to the literature about the interactions between business and financial cycles in emerging markets.
It identify a chronology for the business cycle based on 2-8 years frequency band cycle in output and it measure the cycle components of credit aggregates - credit to GDP ratios and credit growth - as the deviation from long-term trends, using discrete wavelet analysis. The main finding of this paper is that there is predictability of recession based on medium-term cycles (8-16 years) derived from credit variables (credit growth and in the joint fluctuations of both credit variables), but it varies across countries and along the type of forecasting (in-sample or out-of-sample) and horizon of forecasting.

KEYWORDS:  credit cycle, business cycle, Central and Eastern Europe, Wavelet decomposition.

JEL classification:  C25, E32, E37.