Accounting for Crises

American Economic Journal: Macroeconomics (Forthcoming)

59 Pages Posted: 16 Jul 2008 Last revised: 13 Nov 2013

Venky Nagar

University of Michigan, Stephen M. Ross School of Business

Gwen Yu

Harvard Business School

Date Written: August 1, 2013

Abstract

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.

JEL Classification: M41, M47, E44, D81, F30, F36, F41, G12

Suggested Citation

Nagar, Venky and Yu, Gwen, Accounting for Crises (August 1, 2013). American Economic Journal: Macroeconomics (Forthcoming). Available at SSRN: https://ssrn.com/abstract=1160416 or http://dx.doi.org/10.2139/ssrn.1160416

Venky Nagar (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States
734-647-3292 (Phone)
734-764-3146 (Fax)

Gwen Yu

Harvard Business School ( email )

Soldiers Field Road
Morgan 383
Boston, MA 02163
United States

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