The European Commission’s scoreboard of macroeconomic imbalances : the impact of preferences on an early warning system

The European Commission’s Scoreboard of Macroeconomic Imbalances is a rare case of a publicly released early warning system (EWS). That allows for analyzing the preferences of the involved politicians with regard to the two potential errors of an EWS – missing a crisis and issuing a false alarm. This is done for the first time for EWS in general by using a standard signals approach including a preference-based optimization approach to set thresholds. It is shown that in general, the thresholds of the scoreboard are set low (resulting in more alarm signals) as compared to a neutral stand. -- Early warning system ; scoreboard ; preferences ; incentives ; political economy