The Macroeconomic Imbalance Procedure
From the Scoreboard and Thresholds to the decisions
This study employs statistical methods to further develop the Macroeconomic Imbalance Procedure (MIP) Scoreboard in line with the European Parliaments regulation of 2011, so as to make it an even better information aggregation, decision making and communication tool. The contribution to the literature and ongoing policy debate is threefold. First, we synthesize the current empirical literature and show that the predictive power of the MIP Scoreboard has so-far been limited. Second, we apply the methodology of composite indicators, step-by-step on the European Statistical Office (Eurostat) MIP Database (2005-11, 28 Member States, 11 MIP Indicators). By doing so, we spotted few outliers in the headline database, recommended normalised measures (red flag analysis, distance-to-target) already advocated by the European Commission, and conducted multivariate analysis revealing that MIP indicators are only weakly collinear and it is unlikely that they share common factors. Still, when applying the signals approach, which is a standard technique used by earlier empirical studies, a composite measure of threshold breaches was the available second best indicator to signal crisis events in advance. Third, we found that introducing two sided thresholds could be an obvious choice for some flow variables in the MIP scoreboard to identify imbalances both ex-ante and ex-post (in accordance with the prevention and correction goals of the MIP). Such two sided thresholds have been already introduced for two MIP indicators: for the current account deficit and for the real effective exchange rate. Real house prices, unemployment and private sector credit flow could be further candidates to consider for two sided thresholds.
ERHART Szilard;
BECKER William Edward;
SAISANA Michaela;
2019-01-17
Publications Office of the European Union
JRC106900
978-92-79-98453-2 (online),
1831-9424 (online),
EUR 29588 EN,
OP KJ-NA-29588-EN-N (online),
https://publications.jrc.ec.europa.eu/repository/handle/JRC106900,
10.2760/038148 (online),
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