Indicators of Financial Crisis: How do They Perform?
University of Neuchatel
August 28, 2009
This paper analyses the power of 18 macroeconomic and financial indicators to predict financial crises in 27 emerging and developed countries during the period 1971-2007. For this purpose, 3 approaches were used: Multivariate probit and logit approaches, and a univariate signal approach. The in-sample explanatory power of the indicators was estimated for the whole range 1971:01-2007:12, and out-of-sample forecasts were performed to predict the Asian and the Columbian crises in 1997, the Argentinean crisis in 2001, and most importantly, the current financial crisis in 2007/2008 for industrial countries. The logit and probit approaches demonstrate stronger results in predicting financial crises than the signal approach. All approaches show good results for Columbia 1997 and Argentina 2001, modest - for the Asian crisis in 1997, but would not have been able to predict the current financial crisis in 2007/2008.
Number of Pages in PDF File: 58
Keywords: Financial crisis, Macroeconomic and financial variables, Probit and Logit regressions, Signal approach
JEL Classification: C23, C81, E32working papers series
Date posted: September 23, 2009
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