Forecasting Banking Crises with Dynamic Panel Probit Models

Banco de Portugal Working Papers 2016

49 Pages Posted: 6 Sep 2016

See all articles by Antonio Antunes

Antonio Antunes

Bank of Portugal - Department of Economics

Diana Bonfim

Banco de Portugal; Catholic University of Portugal (UCP) - Catolica Lisbon School of Business and Economics

Nuno Monteiro

Bank of Portugal

Paulo M.M. Rodrigues

Banco de Portugal

Date Written: September 5, 2016

Abstract

Banking crises are rare events, however when they occur they often have dramatic consequences. The aim of this paper is to contribute to the toolkit of early warning models available to policy makers by exploring the dynamics and non-linearities embedded in a panel dataset covering several countries over three decades. The in-sample and out-of-sample forecast performance of several dynamic probit models is evaluated, with the objective of developing a common vulnerability indicator with early warning properties. The results obtained evidence that adding dynamic and non-linear components to the models substantially improves the ability to forecast banking crises.

Keywords: banking crisis, binary data, dynamic probit models, early warning models.

JEL Classification: C12, C22

Suggested Citation

Antunes, Antonio and Bonfim, Diana and Monteiro, Nuno and Marques Rodrigues, Paulo Manuel, Forecasting Banking Crises with Dynamic Panel Probit Models (September 5, 2016). Banco de Portugal Working Papers 2016, Available at SSRN: https://ssrn.com/abstract=2834967 or http://dx.doi.org/10.2139/ssrn.2834967

Antonio Antunes

Bank of Portugal - Department of Economics ( email )

Av Almirante Reis, 71
P-1150-012 Lisboa
Portugal

Diana Bonfim (Contact Author)

Banco de Portugal ( email )

Av Almirante Reis, 71
P-1150-012 Lisboa
Portugal

Catholic University of Portugal (UCP) - Catolica Lisbon School of Business and Economics ( email )

Palma de Cima
Lisbon, 1649-023
Portugal

Nuno Monteiro

Bank of Portugal ( email )

Rua Francisco Ribeiro, 2
Lisbon, 1150-165
Portugal

Paulo Manuel Marques Rodrigues

Banco de Portugal ( email )

R. do Ouro, 27
Lisboa, 1100-150
Portugal

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