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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
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Economic resilience: A new set of vulnerability indicators for OECD countries
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- Oliver Röhn1, Aida Caldera Sánchez1, Mikkel Hermansen, Morten Rasmussen
- Author Affiliations
- 1: OECD, France
- 28 July 2015
- Bibliographic information
The high costs of crises underscore the need to strengthen the resilience of economies, notably by assessing early on potential vulnerabilities that can lead to such costly events. This paper first discusses the source and nature of potential vulnerabilities in OECD countries that can lead to costly economic crises. Based on the most recent evidence from the early warning literature and lessons learned from the global financial crisis, it then proposes a new dataset of more than 70 vulnerability indicators that could be monitored to assess country risks in OECD economies. The indicators are grouped into five domestic areas: i) financial sector imbalances, ii) non-financial sector imbalances, iii) asset market imbalances, iv) public sector imbalances and v) external sector imbalances. An additional international “spillovers, contagion and global risks” category aims at capturing vulnerabilities that could transmit from one country to another through financial, trade or confidence channels. Evidence in a companion paper (Hermansen and Röhn, 2015) shows that the majority of the proposed indicators for which sufficiently long time series exists is helpful in predicting severe recessions and crises in the 34 OECD economies and Latvia between 1970 and 2014.
- crisis, resilience, imbalances, vulnerability, recession
- JEL Classification:
- E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy
- E51: Macroeconomics and Monetary Economics / Monetary Policy, Central Banking, and the Supply of Money and Credit / Money Supply ; Credit ; Money Multipliers
- F37: International Economics / International Finance / International Finance Forecasting and Simulation: Models and Applications
- F47: International Economics / Macroeconomic Aspects of International Trade and Finance / Forecasting and Simulation: Models and Applications