Accounting for Crises
The Stephen M. Ross School of Business at the University of Michigan
Harvard Business School
August 1, 2013
American Economic Journal: Macroeconomics (Forthcoming)
We provide one of the first empirical evidence consistent with recent macro global-game crisis models, which show that the precision of public signals can coordinate crises (e.g., Angeletos and Werning 2006; Morris and Shin 2002, 2003). In these models, self-fulfilling crises (independent of poor fundamentals) can occur only when publicly disclosed signals of fundamentals have high precision; poor fundamentals are the sole driver of crises only in low precision settings. We find evidence consistent with this proposition for 68 currency and systemic banking crises in 17 countries from 1983-2005. We exploit a key publicly-disclosed signal of fundamentals that drives financial markets, namely accounting data, and find that pre-crisis accounting signals of fundamentals are significantly lower only in low precision countries.
Number of Pages in PDF File: 59
JEL Classification: M41, M47, E44, D81, F30, F36, F41, G12Accepted Paper Series
Date posted: July 16, 2008 ; Last revised: November 13, 2013
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