Recent studies show that a standard partial adjustment model with the debt ratio as the dependent variable cannot distinguish between mechanical mean reversion and adjustment to target capital structure. I propose a new approach that uses the net increase of debt as the dependent variable and...

This paper contributes to the literature on early warning indicators by applying a Bayesian model averaging approach. Our analysis, based on Austrian data, is carried out in two steps: First, we construct a quarterly financial stress index (AFSI) quantifying the level of stress in the Austrian...