Abstract
Research background: The evaluation of the predictive strength of MIP indicators in relation to crises is extremely important for the process of coordinating the economic policies of the EU countries. MIP is one of the pillars of the economic crisis prevention procedure. Predictive power of individual indicators has not been tested before their introduction.
 Purpose of the article: Evaluation of the predictive strength of fourteen MIP indicators in relation to multidimensional crises in the EU countries.
 Methods: We used ordered probit model to test the ability of MIP indicators to correctly predict episodes of ?multidimensional crises? (as defined by the authors) in the period between 2008 and 2017 in all EU Member States.
 Findings & Value added: We defined ?multidimensional crises?, combining several negative phenomena into one limited dependent variable. This work is also novel in its application of probit regression to test the predictive strength of MIP indicators with an ordered probit model. We identified five MIP variables which were statistically significant in predicting ?multidimensional crises? for all EU countries: net international investment position, nominal unit labour cost index, house price index, private sector credit flow and general government gross debt. Other variables turned out to be less important or not effective in crises prediction.
Highlights
To enable more efficient coordination of economic policies of the Member States (MS) and joint response to crises spreading all over the European Union (EU), the European Semester (ES) was introduced
The purpose of this paper is to evaluate the predictive strength of Macroeconomic Imbalances Procedure (MIP) indicators in relation to events which we call “multidimensional crises”, in all EU countries, using ordered probit model
After providing concept of crises implemented in the paper, we present ordered probit model results
Summary
To enable more efficient coordination of economic policies of the Member States (MS) and joint response to crises spreading all over the European Union (EU), the European Semester (ES) was introduced. The research problem and the main purpose of the study focused our attention to the MIP — framework created to prevent and correct imbalances in the Member States regarding both financial stability and macroeconomic aspects. The purpose of this paper is to evaluate the predictive strength of MIP indicators in relation to events which we call “multidimensional crises”, in all EU countries, using ordered probit model. The problem is extremely important for the process of coordinating the economic policies of the EU MS, as the MIP is one of the pillars of the economic crisis prevention procedure. This paper is novel in the way aggregate crisis variables are applied, measuring the intensity of the crisis, and in its use of an ordered probit model for the data analysis, formerly utilised for predicting corporate liquidity or currency crises
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