*Financial Crisis Indicators in the Literature

 Article Info

 Indicators Used

 Andrade, Joaquim P. and Vladimir Kuhl Teles.  2004.  An Empirical Model of the Brazilian Country Risk - An Extension of the Beta Country Risk Model.  Econometric Society 2004 Latin American Meetings 284, Econometric Society.

 Foreign Reserves (source: IPEA), Oil Price (EIA), Nominal Interest Rate (IPEA), Financial borrowing needs of the public sector - primary deficit (IPEA)

 Alba, Pedro, Amar Bhattacharya, Stijn Claessens, Swati Ghosh and Leonardo Hernandez.  1999.  The Role of Macroeconomic and Financial Sector Links in East Asia’s Financial Crisis.  Chapter One in The Asian Financial Crisis: Causes, Contagion and Consequences.  Agenor, Miller, Vines and Weber, eds.  New York: Cambridge University Press.

 reinforcing dynamics between capital flows, macro policies, and weak financial and corporate sector institutions.  Financial market segmentation, sterilization and tight monetary policy in response to capital inflows, high firm leverage, currency and maturity mismatches

 Baig, Taimur and Ilan Goldfajn.  1999.  Financial Market Contagion in the Asian Crisis.  IMF Staff Papers 46(2).

 correlation in nominal exchange rates, stock markets correlation,interest rate correlation (overnight call rate), interest rates on foreign currency–denominated debt (selected dollar-denominated debt for the five countries, and then calculate the spread by subtracting the U.S. treasury bill yield with the corresponding maturity. The resulting spreads are proxies for default risk for the respective countries), dummy for financial-economic news

 Barro, Robert J.  2001.  Economic Growth in East Asia before and after the Financial Crisis.  NBER Working Paper 8330. 

 currency depreciation,level of nominal interest rate, real per capita GDP, investments ratio (real investments -private + public- relative to real GDP), stock market prices (real stock). the estimation procedure is taken from previous works by Barro: 3SLS dependent variable is the five year rates of real per capita GDP; explanatory variables: constant, log of per capita gdp at the beginning of each period, two measures of human capital (average years of school, life expectancy at birth, fertility rate); ratio government consuption to gdp, indicator of property right enforcament, openess to international trade, inflation, real investment to gdp, terms of trade. second estimation: dependent variable: average of the ratio of real investment to real GDP (investment ratio). among the explanatory variables is used the lagged investment ratio, initial level of gdp, human capitals (same of the previous regression), fertility rate. website of Andrew Rose for data on bank crises. then he add currency-crisis and banking-crisis variables to the system.

 Barry Eichengreen.  1996.  Golden Fetters: The Gold Standard and the Great Depression, 1919-1939.  New York: Oxford University Press.

 Gold standard, government policy credibility related to ignorance that exchange rate policy might be at odds with domestic policy, cooperation among major nations to defend gold

 Berg, Andrew.  1999.  The Asia Crisis: Causes, Policy Responses, and Outcomes.  IMF Working Paper 99/138.

 GDP, inflation, exports, imports, terms of trade, exchange rate, REER, trade balance, current account, private capital inflows, official capital inflows, short term external debt, government balance, public debt, domestic debt/gdp, domestic credit growth, short term debt/reserves, M2/reserves, export growth,  non performing loans as share of total loans, corporate: debt/equity, return on assets. private bank lending to GDP, incremental capital/output ratio. current account deficit, exchange rate overvaluation,export growth,reserves losses, short term external debt/reserves. Spreads on dollar-denominated sovereign bonds, stock market indices. real interest rate. expected dollar returns annualized yields, based on survey expectations of echange rates (bloomberg, IMF staff projections, Goldfajn and Baig 1998), real money

 Bernanke, Ben S.  1995.  The Macroeconomics of the Great Depression: A Comparative Approach.  Journal of Money, Credit and Banking, 27(1):  1-28.

 monetary contraction and deflation

 Bernanke, Ben S. and Kevin Carey.  1996.  Nominal Wage Stickiness and Aggregate Supply in the Great Depression.  Quarterly Journal of Economics 111(3): 853-83.

 Real wage stickiness, gold standard

 Bordo, Michae D., Christopher J. Erceg, Charles L. Evans. 2000.  Money, Sticky Wages, and the Great Depression.  The American Economic Review 90(5): 1447-1463/

 monetary shocks

 Brunnermeier, Markus, Andrew Crockett, Charles Goodhart, Avinash D. Persaud and Hyun Shin.  2009.  The Fundamental Principles of Financial Regulation.  Geneva Reports on the World Economy – Preliminary Conference Draft.

 BANKS: asset/liab maturity mismatch-->liquidity exposure, reliance on short-term or commercial paper, low asset sales price with low market liquidity, margin/haircut, individually systemic banks

 Calomiris, Charles and Joseph R. Mason, 2003. “Fundamentals, Panics, and Bank Distress During the Depression”, American Economic Review 93.

 degeneration of banking fundamentals in 1930 and 1931

 Caprio, Gerard.  2009.  Financial Regulation in a Changing World: Lessons from the Recent Crisis.  Institute for International Integration Studies Discussion Paper 308.

 financial innovation without regulation

 Chang, Ha-Joon.  2000.  The Hazard of Moral Hazard: Untangling the Asian Crisis.  World Development 28(4): 775-788.

 a paper on moral hazard. role of industrial policy (role of the state in the industrial sector) cronyism, presence of deposit insurance, too big to fail framework,IMF bail-outs

 Chinn, Menzie and Hiro Ito.  2005.  What Matters for Financial Development?  Capital Controls, Institutions, and Interactions.  UC Santa Cruz: Santa Cruz Center for International Economics.

 poor legal and institutional structures combined with financial openness

 Chiodo, Abbigail J. and Michael T. Owyang.  2002.  A Case Study of a Currency Crisis: The Russian Default of 1998.  The Federal Reserve Bank of St. Louis Review.  November/December.

 First generation models: increasing current account deficit, decreasing foreign reserves.  Second generation models:  currency crisis in a neighboring country.  Third-generation models: High debt, low foreign reserves.  Russia: political turmoil, poor macro performance, high gvt debt.  After crisis begins: stock market crash.

 Collyns, Charles and Abdelhak Senhadji.  2002. Lending Booms, Real Estate Bubbles, and The Asian Crisis.  IMF Working Paper No. 02/20.

 real estate price, stock market price, property prices (even if they are not so frequent and lenght ot time series is often limited), consumer price index, growth rate of credit to private sector,bank lending, regression and VAR with: property price index that reflects both residential and non residential property prices (deflated by the CPI), real gdp per capita, credit to private sector deflated by CPI, dummy on time and dummy on bias.

 Corsetti, Giancarlo, Paolo Pesenti, Nouriel Roubini.  1998.  Paper Tigers? A Model of the Asian Crisis.  NBER Working Paper No. 6783.

 section "empirical evidence": regression of "crisis index" on different regressors. Dependent variable: IND= a weighted average of the percentage rate of the exchange rate depreciation and the percentage change in foreign reserves between two periods. independent variables: stock of non performing loans as a share of total assets, stock of non performing loans as a share of GDP, current account balance as a share of GDP, ratio between monetary aggregate and foreign exchange reserves, ratio foreign debt service burden to foreign reserve.

 Crotty, James.  2009.  Structural Causes of the Global Financial Crisis: A Critical Assessment of the ‘New Financial Architecture.’  Cambridge Journal of Economics 33(4): 563-580.

 low interest rates, low loan default rates, low risk spreads and security price
volatility, along with high profits and rising stock prices

 Edwards, Sebastian.  2005.  Capital Controls, Sudden Stops and Current Account Reversals.  NBER Working Paper No. 11170.

 once a crisis occurs, countries with higher capital mobility tend to face a higher cost, in terms of growth decline

 Eichengreen, Barry and Peter Temin.  1997.   The Gold Standard and the Great Depression.  NBER Working Paper No. W 6060.

 Gold Standard

 Fender and Gyntelberg (BIS Quarterly Review, December 2008)

 Immediate causes: enlarged credit spreads, decline and volatility in equity prices, firm access to funding decreases, declining government bond yields, declines in yield curves

 Goldstein, Morris.  1998.  The Asian Financial Crisis: Causes, Cures, and Systemic Implications.  Institute for International Economics Policy Analyses in International Economics.

 Overextension of credit particularly to real estate, export slowdown, fixed exchange rates, liquidity and currency mismatches, connected lending (moral hazard), low levels of transparency, current account deficits, low quality of investment, deteriorating competitiveness reflected in real exchange rates, overproduction in some industries, increasing competition in others

 Goodhart, Charles, and Avinash Persaud (2008). A Proposal for how to Avoid the Next Crash. Financial Times, January 31, p. 9.

 Boom predicts risk is low/ increasing asset prices

 Kaminsky, Graciela L., Saul Lizondo, Carmen M. Reinhart   1998.  Leading Indicators of Currency Crises. Staff Papers - International Monetary Fund, Vol. 45, No. 1 pp. 1-48

 international reserves, real exchange rate, not current account balance, credit growth, credit to public sector, and domestic inflation.  Exchange rate expectations and interest rate differentials do not work well, real exchange rate, banking crises, exports, stock prices, M2/international reserves, output

 Kaminsky, Graciela L. and Carmen M. Reinhart.  1999. The Twin Crises: The Causes of Banking and Balance-of-Payments Problems.  American Economic Review 89(3) : 473-500.

 Foreign exchange reserves, domestic-foreign interest rate differential on deposits.  M2 rises prior, domestic credit to GDP above normal prior, real interest rate rises, lending to deposit rate increases prior, excess M1 balances, M2 to reserves increases, bank deposits-losses after crisis starts, exports decline, imports decline, terms of trade decline, real exchange rates become overvalued, foreign exchange reserves fall, domestic-foreign real interest rate differentials on deposits, output growth and changes in stock prices, fiscal deficit to gdp ratio

 Kindleberger, Charles P.  1986.  The World in Depression, 1929-1939.  Berkeley: University of California Press.

 Too complicated and situational to define specific indicators pre crisis

 Kindleberger. Charles P.  1978. Manias, Panics and Crashes: A History of Financial Crises. New York: John Wiley.

 Asset price bubbles

 Minsky, Hyman.  1991.  Financial Crises: Systemic or Idiosycratic.  Levy Institute Working Paper No. 51.

 erosion of margin of safety, safety being assets greater than liabilities, cash flow from assets greater than cash flow of liabilities, in hedge financing, interest rates provide incentive to increase liabilities and indebtedness

 Neftci, Salih N.  2002.  FX Short Positions, Balance Sheets, and Financial Turbulence.  Chapter Eleven in Eatwell and Taylor, ed. International Capital Markets, New York: Oxford University Press.

 exchange rate pegging, open foreign exchange positions in the banking sector, nontransparent bank books, undercapitalized banks, concentration of ownership in banks, limited experience with past banking crises

 Perry, Guillermo and Luis Serven.  2004. The Anatomy of a Multiple Crisis: Why was Argentina Special and What Can We Learn from It?  Monetary Unions and Hard Pegs (57): 231-287.

 overvalued real exchange rate, overextended fiscal policy

 Radelet, Steven and Jeffrey Sachs.  1998.  The Onset of the East Asian Financial Crisis.  NBER Working Paper 6680.

 Financial panic, poor IMF policies, poor country policies

 Reinhart, Carmen and Ken Rogoff, 2009. This Time is Different: A Panoramic View of Eight Centuries of Financial Crises. Princeton: Princeton University Press.

 CPI, exchange rate, currency debasemt, real GDP in PPP 1990, exports, gvt finance, natl accts, current acct deficit for finl ctr, real & nom GDP for finl ctr, st & lt int rates for finl ctr, world commodity prices//crashes-inflation, currency, debasement, banking crises, external and domestic default

 Reinhart, Carmen, Morris Goldstein and Graciela Kaminsky.   2000.   Assessing Financial Vulnerability: An Early Warning System for Emerging Markets: Introduction.  MPRA Paper No. 13629.

 Real output 12 mo growth rate, equity prices 12 mo growth rate, international reserves 12 mo growth rate, domestic/foreign real interest rate differential level, excess real M1 balances, level, M2 international reserves 12 mo growth rate, bank deposits 12 mo growth rate, M2 multiplier 12 mo growth rate, domestic credit to GDP 12 mo growth rate, real interest rates on deposits level, lending interest rate deposit inteest rate level, real exchange rate deviation from trend, exports 12 mo growth rate, imports 12 mo growth rate, terms of trade 12 mo growth rate, moody's sovereign credit rating one month change, institutional investor sovereign credi ratings semi annual change, general govt consumption annual growth rate, overall budget deficit to GDP ratio, net cred ti public sector over GDP, central bank credit to public sector over GDP, short term capital inflows over GDP, FDI/GDP, current account imabalnce over GDP, current account imbalance investment

 Rose, Andrew and Mark Spiegel.  2009.  The Causes and Consequences of the 2008 Crisis: International Linkages and American Exposure.  Forthcoming, Pacific Economic Review.

 real GDP, stock market, country credit ratings(Institutional Investor, Euromoney), exchange rate (SDR from IMF). share of bilateral trade between two countries in total trade; degree to which a country's exports compete with those of the epicentr country, country’s balance sheet. As measures of direct financial exposure, Forbes and Chinn (2004) use the ratio of total bank lending and foreign direct investment to a given country as a share of GDP. Ehrmann and Fratzscher (2009) use all bilateral stocks of assets and liabilities for foreign direct investment, portfolio investment and debt, and loans, as a share of GDP. government guarantees of liquidity. Caramazza, et al (2000) also examine exposure to a common creditor, measured as the share of a country’s borrowing from the country that lent most to the ground zero country, the importance of the borrower for that creditor country, and the product of these two measures, indicating mutual importance. log of population, log of real GDP per capita, percentage change in the stock market 2003-2006. share of external assets (from IMF CPIS data set).currency composition of public and publicly-guaranteed debt (Global Development Finance data set WB).

 Sutela, Pekka.  1999.  The Financial Crisis in Russia.  Bank of Finland Online Publication 11.

 (in this work there are no regressions) inflation, exchange rate, industrial production, export volumes, export value, real incomes (all indicators to observe the structure and the end of the crisis). Stock of bank credit to private sector in percentage of GDP, stock exchange capitalisation/GDP (to establish if the financial and equity markets are small or not), number of energy, telecommunications and infrastructure companies (competitiveness problem), share of barter (Russian Economic Barometer survey time-series), fiscal policy, share of government securities held by non-residents, banking sector concentration, commodities share in merchandise trade, terms of trade, oil price.

 Tobin, James.  1998.  Asian Financial Crisis.  Japan and the World Economy 10: 351-353.

 exchange rate regimes. Problems with the IMF rescue actions: they worsened the problems of the Asian countries instead of suporting their recovery.

 Wade, Robert and Frank Veneroso.  1998.  The Asian Crisis: The High-Debt Model Vs. The Wall Street-Treasury-IMF Complex.   New Left Review, March/April: 323.

 interest rate, capital flows, inflation, budget deficits or surpluses, debt/equity ratio (usually under 1, in Asia more than 1 oer 2), raios of bank deposits and loan intermediation to GDP and corporate debt to equity (high ratios means that the financial structure is vulnerable to shock that depress cash flows ot the supply of bank or portfolio capital), corporate debt/GDP ratio (low ratio means that they are less vulnerable to shocks), foreign debt by banks and companies.