Self-Fulfilling and Fundamental Banking Crises: A Multinomial Logit Approach

Economics Bulletin, Vol.6, No. 17, 1-11, 2007

Posted: 2 Jul 2014

See all articles by Fidel Gonzalez

Fidel Gonzalez

Sam Houston State University - College of Business Administration - Department of Economics and International Business

Matias Fontenla

University of New Mexico - Department of Economics

Date Written: 2007

Abstract

This paper uses a multinomial logit model to examine the factors associated with the occurrence of both self-fulfilling and fundamental banking crises. We find evidence indicating that the two types of crises are indeed different, and are explained by different variables. Self-fulfilling crises tend to occur when bank liabilities relative to reserves are high, when the financial system is liberalized, and for high levels of short-term debt relative to total debt. They are also associated with lending booms and government surpluses. In contrast, fundamental crises are linked to depreciations of the local currency, to financial liberalization and are negatively related to the country's level of development and quality of institutions. Also, countries that experienced multiple crises are more likely to experience fundamental crises.

Keywords: Banking Crises, Multinomial Logit

JEL Classification: F4, G2

Suggested Citation

Gonzalez, Fidel and Fontenla, Matias, Self-Fulfilling and Fundamental Banking Crises: A Multinomial Logit Approach (2007). Economics Bulletin, Vol.6, No. 17, 1-11, 2007. Available at SSRN: https://ssrn.com/abstract=2461034

Fidel Gonzalez

Sam Houston State University - College of Business Administration - Department of Economics and International Business ( email )

Huntsville, TX 77341-2118
United States

Matias Fontenla (Contact Author)

University of New Mexico - Department of Economics ( email )

1915 Roma NE/Economics Building
Albuquerque, NM 87131
United States

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