Vol. 29, No. 2

Kari Heimonen:


Karlo Kauko, Eero Tölö:

On the long-run calibration of the credit-to-GDP gap as a banking crisis predictor

The credit-to-GDP gap is a widely used early warning indicator of banking crises. It has become standard to calculate this trend deviation with a one-sided Hodrick-Prescott filter that uses a much larger value for the smoothing parameter λ than commonly applied in most business-cycle studies. We recalibrate the smoothing parameter with panel data covering almost one-and-a-half centuries of data. As a result, the 2008 crisis does not dominate the results and sample length helps contain filter initialization problems, i.e. most observations are preceeded by decades of data. The optimal λ is found to be much lower than previously suggested.

JEL: G01, E44, N20

Markku Talonen:

Efficiency of Regional Labor Markets: Evidence from Finland

We study the technical efficiency of 15 regional employment offices in Finland from January 2007 to June 2018. Our results support the existence of the matching function in the form consistent with the stock-flow approach to matching. New evidence about efficiency is obtained using a recently published method that divides efficiency into persistent and transient components. Of these, transient efficiency can be improved by allocating resources more efficiently in the short run, while persistent inefficiency can be influenced by changes in management and policies, which is possible only in the long run. It follows that persistent efficiency can be used for planning policies, while transient efficiency can be used for setting targets for efficiency and monitoring performance in the short run. We find large regional differences for both persistent and transient efficiency. Differences in total efficiency, with persistent and transient components, are smoothed by a negative correlation between transient and persistent efficiency. There is a great potential for decreasing unemployment by raising transient efficiency: if all regions could reach maximum transient efficiency, the unemployment rate would drop by 2.4 percentage points.

JEL: C33, J64

Finnish Economic Papers 2/2020