Assessment of macroeconomic imbalance indicators

This study examines the set of indicators of the early warning system used within the framework of the new Macroeconomic Imbalance Procedure introduced by the European Commission. The primary objective of the procedure is to call the attention of member countries to dangerous developments that may result in macroeconomic imbalances. First, our findings cast light on the fact that it is not expedient to use the same thresholds for all EU member countries and the newly joined countries. Second, we came to the conclusion that in many cases, the indicators used by the Commission do not in their own right prove to be good early warning indicators. However, if a narrower group of them is examined, there is considerable improvement in the forecasting ability of the set of indicators, although this group may be different from country to country. Our findings corroborate what the Commission itself also indicated: it is not expedient to apply the indicators mechanically, and deeper analysis is necessary in each case prior to launching an Excessive Imbalance Procedure.