Assessing Early Warning Systems: How Have they Worked in Practice?

Berg, Andrew; Borensztein, Eduardo; Pattillo, Catherine

doi:10.5089/9781451847284.001

Cited by 216 publications

(181 citation statements)

References 19 publications

Supporting

Mentioning

172

Contrasting

Unclassified

Order By: Relevance

“…The recent literature has focused on the identification of crises and imbalances for large samples of countries, including both developing and developed economies (Rose and Spiegel, 2011;Frankel and Saravelos, 2012). Alternatively, attention has been given to developing and emerging economies (Berg et al, 2005;Bussiere, 2013;Davis and Karim, 2008) or the OECD countries (Barrell et al, 2010;Alessi and Detken, 2011). …”

Section: Countries In the Samplementioning

confidence: 99%

Leading indicators of crisis incidence: Evidence from developed countries

Babecký

Havránek

Matějů

et al. 2013

Journal of International Money and Finance

View full text Add to dashboard Cite

MaRs is to develop core conceptual frameworks, models and/or tools supporting macro-prudential supervision in the EU. The research is carried out in three work streams: 1) Macro-financial models linking financial stability and the performance of the economy; 2) Early warning systems and systemic risk indicators; 3) Assessing contagion risks. MaRs is chaired by Philipp Hartmann (ECB). Paolo Angelini (Banca d'Italia), Laurent Clerc (Banque de France), Carsten Detken (ECB), Cornelia Holthausen (ECB) and Katerina Šmídková (Czech National Bank) are workstream coordinators. Xavier Freixas (Universitat Pompeu Fabra) and Hans Degryse (Katholieke Universiteit Leuven and Tilburg University) act as external consultant. Angela Maddaloni (ECB) and Kalin Nikolov (ECB) share responsibility for the MaRs Secretariat. The refereeing process of this paper has been coordinated by a team composed of Cornelia Holthausen, Kalin Nikolov and Bernd Schwaab (all ECB). The paper is released in order to make the research of MaRs generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the ones of the author(s) and do not necessarily reflect those of the ECB or of the ESCB. Acknowledgements 1 AbstractWe search for early warning indicators that could indicate important risks in developed economies. We therefore examine which indicators are most useful in explaining costly macroeconomic developments following the occurrence of economic crises in EU and OECD countries between 1970 and 2010. To define our dependent variable, we bring together a (continuous) measure of crisis incidence, which combines the output and employment loss and the fiscal deficit into an index of real costs, with a (discrete) database of crisis occurrence. In contrast to recent studies, we explicitly take into account model uncertainty in two steps. First, for each potential leading indicator, we select the relevant prediction horizon by using panel vector autoregression. Second, we identify the most useful leading indicators with Bayesian model averaging. Our results suggest that domestic housing prices, share prices, and credit growth, and some global variables, such as private credit, are risk factors worth monitoring in developed economies. When the global turmoil demonstrated that developed economies can be also among those hit significantly by a crisis, it was not obvious whether the previously identified early warning indicators should be employed again. We try to take up this challenge and contribute to the early warning literature by focusing solely on developed economies and by offering several methodological improvements for explaining crisis incidence.In the first step, we refine the measure of the real costs of crises to the economy by combining a continuous index of real costs with a binary index of crisis occurrence. The continuous index reflects the output and employment loss along with the fiscal deficit, while the binary index captures the occurrence of various (bank...

show abstract

Section: Countries In the Samplementioning

confidence: 99%

Leading indicators of crisis incidence: Evidence from developed countries

Babecký

Havránek

Matějů

et al. 2013

Journal of International Money and Finance

View full text Add to dashboard Cite

show abstract

“…Berg /Borensztein/Pattillo (2005) evaluate these models and assess the predictive power of models from both, policymakers and private investors. Some of these early warning indicators, such as M2/reserves, exchange rate volatility, the current account balance, credit growth, sovereign ratings and others, can help to explain the behaviour of portfolio capital investors in their short-term horizon and response to instabilities.…”

Section: Literature Reviewmentioning

confidence: 99%

What drives portfolio investments of German banks in emerging capital markets?

Wildmann

2011

Financ Mark Portf Manag

View full text Add to dashboard Cite

After decades of steady liberalisation and financial market development, emerging capital markets experienced unparalleled capital inflows in the aftermath of the emerging markets crisis in the 1990s. This paper studies portfolio investment decisions of German banks in 30 emerging capital markets using monthly data from 2002 to 2007. The use of a dynamic TimeSeries Cross-Section framework and the micro database External Position Report provided by Deutsche Bundesbank, which covers German banks assets and liability positions vis-à-vis foreign countries, allows insights into the various determinants: indicators of financial market development, the portfolio-calculus of investors, investor-specific characteristics, as well as the macroeconomic environment. There is evidence for German banks taking into account the various dimensions of financial market development in their portfolio investment decisions and anticipating the special risks inherent in emerging markets. The implication for policymakers would be to foster financial market development in order to attract and sustain international portfolio investors. However, there is additional evidence for the investor's domestic market environment and global risk aversion exerting a significant influence in times of financial turmoil.

show abstract

“…For example, Peltonen (2006) and Fioramanti (2008) show that a neural network outperforms a probit model in predicting currency and debt crises. However, while the utilization of non-linear techniques may increase a posteriori prediction accuracies to a minor extent, Peltonen (2006) and Berg et al (2005) demonstrate that the results of a priori predictions of financial crises remain disappointing. Given the changing nature of the occurrences of these extreme events, stand-alone numerical analyzes are unlikely to comprehensively describe them.…”

Section: Introductionmentioning

confidence: 99%

Mapping the state of financial stability

Sarlin

Peltonen

2013

Journal of International Financial Markets, Institutions and Mo

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Wo r k i n g Pa Pe r S e r i e S n o 1382 / S e P t e m b e r Macroprudential Research NetworkThis paper presents research conducted within the Macroprudential Research Network (MaRs). The network is composed of economists from the European System of Central Banks (ESCB), i.e. the 27 national central banks of the European Union (EU) and the European Central Bank. The objective of MaRs is to develop core conceptual frameworks, models and/or tools supporting macro-prudential supervision in the EU.The research is carried out in three work streams: 1) Macro-financial models linking financial stability and the performance of the economy; 2) Early warning systems and systemic risk indicators; 3) Assessing contagion risks. The refereeing process of this paper has been coordinated by a team composed of Cornelia Holthausen, Kalin Nikolov and Bernd Schwaab (all ECB).The paper is released in order to make the research of MaRs generally available, in preliminary form, to encourage comments and suggestions prior to final publication. The views expressed in the paper are the ones of the author(s) and do not necessarily reflect those of the ECB or of the ESCB. ECB Working Paper Series No 1382September 2011 Abstract 4 Non-technical summary 5

show abstract

Assessing Early Warning Systems: How Have they Worked in Practice?

Cited by 216 publications

References 19 publications

Leading indicators of crisis incidence: Evidence from developed countries

Leading indicators of crisis incidence: Evidence from developed countries

What drives portfolio investments of German banks in emerging capital markets?

Mapping the state of financial stability

Contact Info

Product

Resources

About