Money Market Pressure and the Determinants of Banking Crises

Abstract

This article develops an index of money market pressure to identify banking crises. We define banking crises as periods in which there is excessive demand for liquidity in the money market. We begin with the theoretical foundation of this new method. With the newly defined crisis episodes, we examine the determinants of banking crises using data complied from 47 countries. We find that slowdown of real GDP, lower real interest rates, extremely high inflation, large fiscal deficits, and over-valued exchange rates tend to precede banking crises. The effects of monetary base growth on the probability of banking crises are negligible. Copyright 2007 The Ohio State University.

Determinants of Stock Market Co-Movements between Pakistan and Asian Emerging Economies

“…Investigating the dynamics of international stock market integration gives important insight to policymakers to design strategies that sustain the stability of the country's economy against global shocks. For example, by studying the Asian financial crisis (1997)(1998), Von Hagen and Ho (2007) emphasized that any systematic shock (e.g., financial crisis) can spread from one economic system to another, if two markets are integrated. Therefore, it is very important for policy makers to develop a proper understanding of the extent and strength of stock market integrations in order to remain vigilant and undertake pre-emptive measures to prevent systematic shocks.…”

The empirics of banking regulation

“…However, his paper does not apply the MSM framework to study the effect of banking regulations on the banking system stability, which is the main feature we are interested in. The papers by Hawkins and Klau (2000), Kibritçioglu (2002), and Von- Hagen and Ho (2007) are related in that they build banking system fragility indices, and use them to identify episodes of a banking crisis. 4 The objective of this method is to construct an index that can reflect the vulnerability or the fragility of the banking system (i.e., periods in which the index exceeds a given threshold are defined as banking crisis episodes).…”

“…In fact, available banking crisis indicators identify a crisis year using a combination of market events such as closures, mergers, runs on financial institutions, and government emergency measures. After Von Hagen and Ho (2007), we refer to this approach of dating banking crisis episodes as the event-based approach. 2 This approach identifies crises only when they 1 Matutes and Vives found that deposit insurance has ambiguous welfare effects in a framework where the market structure of the banking industry is endogenous.…”

Banking Instability and Deposit Insurance: The Role of Moral Hazard

“…To quantify banking instability, we build on the ideas of Eichengreen, Rose and Wyplosz (1995;1996a;1996b) and Von Hagen and Ho (2007). Using monthly time series data, we compute deseasonalised growth rates of demand deposits (DD t ) and time deposits (T D t ) to construct a measure of bank runs (brun t ); and credit extended to the private sector (CR t ) to calculate a measure of insolvency (insolv t ).…”