We show that the trend of the one-sided HP filter can be asymptotically approximated by the Holt-Winters (HW) filter. The later is an elegant, moving average representation and facilitates the computation of trends tremendously. We confirm the accuracy of this approximation empirically by...

We show that the trend of the one-sided HP filter can be asymptotically approximated by the Holt-Winters (HW) filter. The later is an elegant, moving average representation and facilitates the computation of trends tremendously. We confirm the accuracy of this approximation empirically by...

The credit gap, defined as the deviation of the credit-to-GPD ratio from a Hodrick-Prescott (HP) filtered trend, is a powerful early warning indicator for predicting crises. Basel III therefore suggests that policymakers should use it as part of their countercyclical capital buffer frameworks....

Banks often measure credit and interest rate risk separately and then add the two risk measures to determine their overall economic capital. This approach misses complex interactions between the two risks. We develop a framework where credit and interest rate risks are analysed jointly. We focus...

We develop a measure of systemic importance that accounts for the extent to which a bank propagates shocks across the banking system and is vulnerable to propagated shocks. Based on Shapley values, this measure gauges the contribution of interconnected banks to systemic risk, in contrast to...

This paper reviews the debt service ratio (DSR) as a theoretically well-grounded indicator of systemic risk. The DSR has the desirable feature that it fluctuates around a stable level which makes its early warning signals easy to understand and communicate. In contrast, current early warning...