Critical slowing down as an early warning signal for financial crises?

Abstract

Financial crises have repeatedly been coined as a potential application area in the recent literature on constructing early warning signals through identifying characteristics of critical slowing down on the basis of time series observations. To test this idea, we consider four historical financial crises-Black Monday 1987, the 1997 Asian Crisis, the 2000 Dot-com bubble burst, and the 2008 Financial Crisis-and investigate whether there is evidence for critical slowing down prior to these market collapses. We find statistical evidence for critical slowing down before Black Monday 1987, while the results are mixed or insignificant for the more recent financial crises. Keywords Time series • Bifurcations • Nonlinear dynamical systems • Critical slowing down • Early warning signal • Financial instability JEL Classification C14 • C53 • G01 B Juanxi Wang

Prospects for detecting early warning signals in discrete event sequence data: application to epidemiological incidence data

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Tipping positive change

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Applying Complexity Theory to Interest Rates: Evidence of Critical Transitions in The Euro Area

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