The National Bank of Moldova has published research proposing a financial cycle index to assess cyclical systemic risk in Moldova. The index combines equally weighted, normalized cyclical components of real credit, real residential property prices and the current account balance. It could complement existing macroprudential indicators, including those used to calibrate the countercyclical capital buffer.
The study uses a method that identifies cycles directly from the data without imposing a fixed frequency range, accommodating Moldova’s relatively short macrofinancial data series. Sensitivity tests and estimates incorporating additional observations generally preserved the main characteristics of the estimated cycles. Alternative composite indicators were assessed against the duration of the financial cycle relative to the business cycle, their peaks before the economic contractions of 2009 and 2015, and the economic relevance of each component’s contribution.
Weighting components differently over time offered no clear advantage over equal weighting. The real interest rate was excluded from the selected index because it could generate misleading signals during periods of high inflation, as in 2022. The proposed index would supplement, rather than replace, the credit to gross domestic product gap, banking sector resilience indicators and other relevant macrofinancial information.