Commodity Price Movements and Banking Crises

54 Pages Posted: 1 Aug 2018

See all articles by Markus Eberhardt

Markus Eberhardt

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP)

Andrea Presbitero

International Monetary Fund (IMF)

Date Written: July 2018

Abstract

We develop an empirical model to predict banking crises in a sample of 60 low-incomecountries (LICs) over the 1981-2015 period. Given the recent emergence of financial sectorstress associated with low commodity prices in several LICs, we assign price movements inprimary commodities a key role in our model. Accounting for changes in commodity pricessignificantly increases the predictive power of the model. The commodity price effect iseconomically substantial and robust to the inclusion of a wide array of potential drivers ofbanking crises. We confirm that net capital inflows increase the likelihood of a crisis;however, in contrast to recent findings for advanced and emerging economies, credit growthand capital flow surges play no significant role in predicting banking crises in LICs.

Keywords: Banking crisis, Commodity prices, Banking crisis; Commodity prices; Early warning system; Low-income countries, Early warning system, Low-income countries, International Lending and Debt Problems, International Lending and Debt Problems

JEL Classification: F34, G01, Q02, G21, O19

Suggested Citation

Eberhardt, Markus and Presbitero, Andrea, Commodity Price Movements and Banking Crises (July 2018). IMF Working Paper No. 18/153. Available at SSRN: https://ssrn.com/abstract=3221264

Markus Eberhardt (Contact Author)

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Andrea Presbitero

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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