Download or read book Predicting Self Fulfilling Financial Crises written by Christopher Gandrud and published by . This book was released on 2015 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies how self-fulfilling dynamics affect the predictability of financial crises. We build a model in which market participants play an investment coordination game with common economic shocks and private information about their own willingness to cooperate. An observer attempts to predict the occurrence of a financial crisis in the future based on the players' actions in the present. Under favorable conditions, good market conditions prevent an observer from learning about players' types by observing their actions. This induces a negative correlation between economic conditions in the present and the variance of players' types in the following period, which defines the predictability of financial crises. Under more extreme positive market conditions, the observer cannot use present observations of the players to learn about the probability of a financial crisis in the future. We test the implications of the model using a new continuous measure of financial market stress - “FinStress” - developed by Gandrud and Hallerberg (2015). We find support for a key implication of our theory: the variance of financial market stress is larger following periods of good economic conditions than following poor economic conditions. These conclusions have implications for both empirical analyses of the predictors of financial crises and for policymakers seeking to prevent crises. The findings in our paper suggest that regulators should focus on actors' types (e.g. with stress tests) more than macro-economic conditions. More broadly, our analysis provides a new explanation for why social scientists and area specialists are generally poor at predicting events that require mass coordination, such as financial crises, coups, and revolutions.

Download or read book Self Fulfilling Risk Predictions written by Mr.Robert P. Flood and published by International Monetary Fund. This book was released on 1998-08-01 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper shows that changing market beliefs about currency risk can generate a self-fulfilling speculative attack on a fixed exchange rate. The attack does not require a later change in policies to make it profitable. This is illustrated by introducing an endogenous risk premium into a “first-generation model” of a speculative attack. The model is further modified to take account of sterilization, debt-financed fiscal deficits, and anticipatory price-setting behavior. The model is used to interpret the 1994 Mexican peso crisis.

Download or read book Models of Self fulfilling Financial Crises written by Itay Goldstein and published by . This book was released on 2000 with total page 252 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Financial Crises Explanations Types and Implications written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2013-01-30 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper reviews the literature on financial crises focusing on three specific aspects. First, what are the main factors explaining financial crises? Since many theories on the sources of financial crises highlight the importance of sharp fluctuations in asset and credit markets, the paper briefly reviews theoretical and empirical studies on developments in these markets around financial crises. Second, what are the major types of financial crises? The paper focuses on the main theoretical and empirical explanations of four types of financial crises—currency crises, sudden stops, debt crises, and banking crises—and presents a survey of the literature that attempts to identify these episodes. Third, what are the real and financial sector implications of crises? The paper briefly reviews the short- and medium-run implications of crises for the real economy and financial sector. It concludes with a summary of the main lessons from the literature and future research directions.

Download or read book Early Indicators of Currency Crises Review of Some Literature written by Magdalena Tomczynska and published by . This book was released on 2009 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial crises have become relatively frequent events since the beginning of the 1980s. They have taken three main forms: currency crises, banking crises, or both - so called twin crises. As the number of developed economies, developing countries, and economies in transition experienced severe financial crashes researchers are trying to propose a framework for systemic analyses. That is why attempts to advance the understanding of features leading to the outbreak of financial crisis as well as the reasons of vulnerability have become more and more important. In recent years a number of efforts have been undertaken to identify variables that act as early warning signals for crises. The purpose of this paper is to provide some perspective on the issue of early warning signals of vulnerability to currency crises. In particular, it is aimed at presenting and highlighting the main findings of theoretical literature in this area. An effective warning system should consider a broad variety of indicators, as currency crises seem to be usually associated with multiple economic and sometimes political problems. Indicators that have proven to be particularly useful in anticipating crises and received empirical support include the development of international reserves, real exchange rate, domestic credit, credit to the public sector, domestic inflation, and structure and financing of public debt. Other indicators that have found support are trade balance, export performance, money growth, M2/international reserves ratio, foreign interest rates, real GDP growth, and fiscal deficit. Many of the proposed leading indicators have been able to predict particular crises, however, only few have showed ability to do so consistently. Generally, economic models can be said to be more successful in predicting crises that erupt because of weak fundamentals, which make country vulnerable to adverse shocks. They are less likely in anticipating crises due to selffulfilling expectations or pure contagion effects. So far economists are only able to identify situations in which an economy could face the risk of a financial crisis. This is most because of the well-known fact that if we knew the crisis would have already occurred. Warning indicators seem to be unlikely to predict crises in precise way but their analyses can provide extended information about impending problems what enables to take preventive measures.

Download or read book Prosperity for All written by Roger E. A. Farmer and published by Oxford University Press. This book was released on 2017 with total page 297 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the aftermath of the 2008 financial crisis, economists around the world have advanced theories to explain the persistence of high unemployment and low growth rates. Written in clear, accessible language by prominent macroeconomic theorist Roger E. A. Farmer, Prosperity for All proposes a paradigm shift and policy changes that could successfully raise employment rates, keep inflation at bay, and stimulate growth.

Download or read book Predicting Sovereign Debt Crises written by Paolo Manasse and published by International Monetary Fund. This book was released on 2003-11-01 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an early-warning model of sovereign debt crises. A country is defined to be in a debt crisis if it is classified as being in default by Standard & Poor's, or if it has access to nonconcessional IMF financing in excess of 100 percent of quota. By means of logit and binary recursive tree analysis, we identify macroeconomic variables reflecting solvency and liquidity factors that predict a debt-crisis episode one year in advance. The logit model predicts 74 percent of all crises entries while sending few false alarms, and the recursive tree 89 percent while sending more false alarms.

Download or read book Financial Crises written by Mr.Stijn Claessens and published by International Monetary Fund. This book was released on 2014-02-19 with total page 754 pages. Available in PDF, EPUB and Kindle. Book excerpt: The lingering effects of the economic crisis are still visible—this shows a clear need to improve our understanding of financial crises. This book surveys a wide range of crises, including banking, balance of payments, and sovereign debt crises. It begins with an overview of the various types of crises and introduces a comprehensive database of crises. Broad lessons on crisis prevention and management, as well as the short-term economic effects of crises, recessions, and recoveries, are discussed.

Download or read book The Financial Crisis Inquiry Report written by Financial Crisis Inquiry Commission and published by Cosimo, Inc.. This book was released on 2011-05-01 with total page 692 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Financial Crisis Inquiry Report, published by the U.S. Government and the Financial Crisis Inquiry Commission in early 2011, is the official government report on the United States financial collapse and the review of major financial institutions that bankrupted and failed, or would have without help from the government. The commission and the report were implemented after Congress passed an act in 2009 to review and prevent fraudulent activity. The report details, among other things, the periods before, during, and after the crisis, what led up to it, and analyses of subprime mortgage lending, credit expansion and banking policies, the collapse of companies like Fannie Mae and Freddie Mac, and the federal bailouts of Lehman and AIG. It also discusses the aftermath of the fallout and our current state. This report should be of interest to anyone concerned about the financial situation in the U.S. and around the world.THE FINANCIAL CRISIS INQUIRY COMMISSION is an independent, bi-partisan, government-appointed panel of 10 people that was created to "examine the causes, domestic and global, of the current financial and economic crisis in the United States." It was established as part of the Fraud Enforcement and Recovery Act of 2009. The commission consisted of private citizens with expertise in economics and finance, banking, housing, market regulation, and consumer protection. They examined and reported on "the collapse of major financial institutions that failed or would have failed if not for exceptional assistance from the government."News Dissector DANNY SCHECHTER is a journalist, blogger and filmmaker. He has been reporting on economic crises since the 1980's when he was with ABC News. His film In Debt We Trust warned of the economic meltdown in 2006. He has since written three books on the subject including Plunder: Investigating Our Economic Calamity (Cosimo Books, 2008), and The Crime Of Our Time: Why Wall Street Is Not Too Big to Jail (Disinfo Books, 2011), a companion to his latest film Plunder The Crime Of Our Time. He can be reached online at www.newsdissector.com.

Download or read book Predicting Fiscal Crises A Machine Learning Approach written by Klaus-Peter Hellwig and published by International Monetary Fund. This book was released on 2021-05-27 with total page 66 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper I assess the ability of econometric and machine learning techniques to predict fiscal crises out of sample. I show that the econometric approaches used in many policy applications cannot outperform a simple heuristic rule of thumb. Machine learning techniques (elastic net, random forest, gradient boosted trees) deliver significant improvements in accuracy. Performance of machine learning techniques improves further, particularly for developing countries, when I expand the set of potential predictors and make use of algorithmic selection techniques instead of relying on a small set of variables deemed important by the literature. There is considerable agreement across learning algorithms in the set of selected predictors: Results confirm the importance of external sector stock and flow variables found in the literature but also point to demographics and the quality of governance as important predictors of fiscal crises. Fiscal variables appear to have less predictive value, and public debt matters only to the extent that it is owed to external creditors.

Download or read book Misunderstanding Financial Crises written by Gary B. Gorton and published by Oxford University Press. This book was released on 2012-11-02 with total page 296 pages. Available in PDF, EPUB and Kindle. Book excerpt: Before 2007, economists thought that financial crises would never happen again in the United States, that such upheavals were a thing of the past. Gary B. Gorton, a prominent expert on financial crises, argues that economists fundamentally misunderstand what they are, why they occur, and why there were none in the U.S. from 1934 to 2007. Misunderstanding Financial Crises offers a back-to-basics overview of financial crises, and shows that they are not rare, idiosyncratic events caused by a perfect storm of unconnected factors. Instead, Gorton shows how financial crises are, indeed, inherent to our financial system. Economists, Gorton writes, looked from a certain point of view and missed everything that was important: the evolution of capital markets and the banking system, the existence of new financial instruments, and the size of certain money markets like the sale and repurchase market. Comparing the so-called "Quiet Period" of 1934 to 2007, when there were no systemic crises, to the "Panic of 2007-2008," Gorton ties together key issues like bank debt and liquidity, credit booms and manias, moral hazard, and too-big-too-fail--all to illustrate the true causes of financial collapse. He argues that the successful regulation that prevented crises since 1934 did not adequately keep pace with innovation in the financial sector, due in part to the misunderstandings of economists, who assured regulators that all was well. Gorton also looks forward to offer both a better way for economists to think about markets and a description of the regulation necessary to address the future threat of financial disaster.

Download or read book Global Waves of Debt written by M. Ayhan Kose and published by World Bank Publications. This book was released on 2021-03-03 with total page 403 pages. Available in PDF, EPUB and Kindle. Book excerpt: The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

Download or read book A Perspectiveon Predicting Currency Crises written by Juan Yepez and published by International Monetary Fund. This book was released on 2010-10-01 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Currency crises are difficult to predict. It could be that we are choosing the wrong variables or using the wrong models or adopting measurement techniques not up to the task. We set up a Monte Carlo experiment designed to evaluate the measurement techniques. In our study, the methods are given the right fundamentals and the right models and are evaluated on how closely the estimated predictions match the objectively correct predictions. We find that all methods do reasonably well when fundamentals are explosive and all do badly when fundamentals are merely highly volatile.

Download or read book The End of Theory written by Richard Bookstaber and published by Princeton University Press. This book was released on 2019-04-02 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt: An in-depth look at how to account for the human complexities at the heart of today’s financial system Our economy may have recovered from the Great Recession—but not our economics. The End of Theory discusses why the human condition and the radical uncertainty of our world renders the standard economic model—and the theory behind it—useless for dealing with financial crises. What model should replace it? None. At least not any version we’ve been using for the past two hundred years. Richard Bookstaber argues for a new approach called agent-based economics, one that takes as a starting point the fact that we are humans, not the optimizing automatons that standard economics assumes we are. Sweeping aside the historic failure of twentieth-century economics, The End of Theory offers a novel perspective and more realistic framework to help prevent today's financial system from blowing up again.

Download or read book The Risk of Economic Crisis written by Martin Feldstein and published by University of Chicago Press. This book was released on 1991-08-13 with total page 212 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on a special National Bureau of Economic Research conference held in Oct. 1989. Includes bibliographical references and indexes.

Download or read book Understanding Strategic Interaction written by Wulf Albers and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 526 pages. Available in PDF, EPUB and Kindle. Book excerpt: Strategic interaction occurs whenever it depends on others what one finally obtains: on markets, in firms, in politics etc. Game theorists analyse such interaction normatively, using numerous different methods. The rationalistic approach assumes perfect rationality whereas behavioral theories take into account cognitive limitations of human decision makers. In the animal kingdom one usually refers to evolutionary forces when explaining social interaction. The volume contains innovative contributions, surveys of previous work and two interviews which shed new light on these important topics of the research agenda. The contributions come from highly regarded researchers from all over the world who like to express in this way their intellectual inspiration by the Nobel-laureate Reinhard Selten.

Download or read book The Challenge of Predicting Economic Crises written by Ms.Catherine A. Pattillo and published by International Monetary Fund. This book was released on 2000-09-11 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: The integration of financial markets around the world over the past decade has posed new challenges for policymakers. The speed with which money can be switched in and out of currencies and countries has increased with the efficiency of global communications, considerably shortening the time policymakers have to respond to emerging crises. This pamphlet takes alook at attempts by economists to predict crises by developing early warning systems to signal when trouble may be brewing in currency markets and banking systems.