Early warning models

Computational methods aimed at detecting signals of a bear or bull market in asset prices as far in advance as possible (tool to derive signals of an upcoming boom-bustcycle in asset prices). A good leading indicator in many studies has been excessive credit creation; more precisely – the deviation of the global credit-to-GDP ratio from its trend path and – the global credit growth. – The attempt to identify risks of loss in a foreign currency area in advance and make appropriate portfolio shifts before panic sets in. In the past, the ratio of foreign exchange reserves to short-term foreign debt has been the main reliable indicator. – See Economic Sentiment Indicator, Force on Country Risk Analysis, Financial Stability Forum, Crisis Early Warning System. – Cf. ECB Monthly Bulletin of November 2010, pp. 85 et seq. (early warning signs of asset bubbles; overviews; many references), ECB Annual Report 2011, pp. 29 et seq. (early warning indicators of asset prices).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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