Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/183342
Authors: 
Lang, Jan Hannes
Year of Publication: 
2018
Series/Report no.: 
ECB Working Paper No. 2160
Abstract: 
This paper uses data on bilateral foreign exposures of domestic banking systems in order to construct early warning models for financial crises that take into account cross-country spill-overs of vulnerabilities. The empirical results show that incorporating cross-country financial linkages can improve the signalling performance of early warning models. The relative usefulness increases from 65% to 87% and the AUROC from 0.89 to 0.97 when weighted foreign variables are added to domestic variables in a multivariate logit early warning model. The findings of the paper also suggest that global variables still play a role in predicting financial crises, even when foreign variables are controlled for, which could suggest that both cross-country spill-overs and contagion are important factors for driving financial crises. A parsimonious model with nine variables that combines domestic, foreign and global variables yields an out-of-sample relative usefulness of 0.82 with Type I and Type II errors of 0.11 and 0.07.
Subjects: 
Early Warning Models
Financial Crises
Financial Linkages
JEL: 
G01
G17
F37
F65
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3265-3
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.