The impact of preferences on early warning systems - The case of the European Commission's Scoreboard

•Thresholds in early warning systems depend on preferences of politicians.•Preferences might be different for different politicians depending on institutions.•Preferences are uncovered in this paper for the first time.•Results show that the European Commission sets thresholds relatively low.•Findings are in line with a hypothesis derived from institutional setting.

The European Commission's Scoreboard of Macroeconomic Imbalances is a rare case of a publicly released early warning system. It allows the preferences of the politicians involved to be analysed with regard to the two potential errors of an early warning system - missing a crisis and issuing a false alarm. These preferences might differ with the institutional setting. Such an analysis is done for the first time in this article for early warning systems in general by using a standard signals approach, including a preference-based optimisation approach, to set thresholds. It is shown that, in general, the thresholds of the Commission's Scoreboard are rather tight (resulting in more alarm signals), as compared to a neutral stand. Based on political economy considerations the result could have been expected.