What Macroeconomic Conditions Lead Financial Crises?

31 Pages Posted: 20 Jun 2018 Last revised: 21 Feb 2019

See all articles by Michael T. Kiley

Michael T. Kiley

Board of Governors of the Federal Reserve System

Date Written: 2018-06-15


Research has suggested that a rapid pace of nonfinancial borrowing reliably precedes financial crises, placing the pace of debt growth at the center of frameworks for the deployment of macroprudential policies. I reconsider the role of asset-prices and current account deficits as leading indicators of financial crises. Run-ups in equity and house prices and a widening of the current account deficit have substantially larger (and more statistically-significant) effects than debt growth on the probability of a financial crisis in standard crisis-prediction models. The analysis highlights the value of graphs of predicted crisis probabilities in an assessment of predictors.

Keywords: Current account, Debt, Equity prices, Financial crisis, House prices

JEL Classification: G01, E44, F32

Suggested Citation

Kiley, Michael T., What Macroeconomic Conditions Lead Financial Crises? (2018-06-15). FEDS Working Paper No. 2018-038. Available at SSRN: https://ssrn.com/abstract=3199801 or http://dx.doi.org/10.17016/FEDS.2018.038

Michael T. Kiley (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States
202-452-2448 (Phone)
202-452-5296 (Fax)

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