Does Financial Connectedness Predict Crises?

45 Pages Posted: 29 Jan 2014

See all articles by Camelia Minoiu

Camelia Minoiu

Federal Reserve Board

Chanhyun Kang

University of Maryland - College of Computer, Mathematical and Natural Sciences

V.S. Subrahmanian

University of Maryland - College of Computer, Mathematical and Natural Sciences

Anamaria Berea

Ronin Institute

Multiple version iconThere are 2 versions of this paper

Date Written: December 2013

Abstract

The global financial crisis has reignited interest in models of crisis prediction. It has also raised the question whether financial connectedness - a possible source of systemic risk - can serve as an early warning indicator of crises. In this paper we examine the ability of connectedness in the global network of financial linkages to predict systemic banking crises. Our results indicate that increases in a country's financial interconnectedness and decreases in its neighbors' connectedness are associated with a higher probability of banking crises after controlling for macroeconomic fundamentals.

Keywords: Global Financial Crisis 2008-2009, Banking crisis, Financial risk, Economic integration, early warning systems, systemic risk, financial networks, banking crises, banking systems, banking network, banking networks, systemic banking crises, systemic banking crisis, banking assets, banking system exposures, bank relationships, banking distress, bank portfolios, banking transactions, banking statistics, contagion, interbank market, systemic banking distress, bank exposure, currency crises, foreign asset

JEL Classification: F01, F36, F47

Suggested Citation

Minoiu, Camelia and Kang, Chanhyun and Subrahmanian, V.S. and Berea, Anamaria, Does Financial Connectedness Predict Crises? (December 2013). IMF Working Paper No. 13/267. Available at SSRN: https://ssrn.com/abstract=2387534

Camelia Minoiu (Contact Author)

Federal Reserve Board ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Chanhyun Kang

University of Maryland - College of Computer, Mathematical and Natural Sciences ( email )

2300 Symons Hall,
University of Maryland
College Park, MD 20742-3255
United States

V.S. Subrahmanian

University of Maryland - College of Computer, Mathematical and Natural Sciences ( email )

2300 Symons Hall,
University of Maryland
College Park, MD 20742-3255
United States

HOME PAGE: http://www.cs.umd.edu/~vs/

Anamaria Berea

Ronin Institute ( email )

127 Haddon Pl.
Montclair, NJ 07043-2314
United States

HOME PAGE: http://ronininstitute.org

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