Credit funding and banking fragility: A forecasting model for emerging economies

Alexander Guarín López and Ignacio Lozano-Espitia

Emerging Markets Review, 2017, vol. 32, issue C, 168-189

Abstract: Our paper proposes an empirical model to forecast banking fragility episodes using information from the credit funding sources. We predict the probability of occurrence of such events 3 and 6months ahead, employing a Bayesian Model Averaging on logistic regressions. We perform prediction exercises for nine emerging economies under a broad set of prior specifications, whose results are evaluated using predictive ability tests and the signaling analysis approach. Our findings indicate that the increasing use of wholesale funds provide signals of banking frailness. Moreover, pseudo out-of-sample predictions show that our warning tool is able to forecast financial fragility events.

Keywords: Financial stability; Wholesale funds; Balance sheet; Logistic regression; Bayesian Model Averaging (search for similar items in EconPapers)
JEL-codes: C11 C52 C53 G01 G21 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:32:y:2017:i:c:p:168-189

DOI: 10.1016/j.ememar.2017.06.004

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