Can We Predict Financial Crises?

Wen Dang (), Jiayi Peng, Ruidan Fan and Zifei Wang
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Wen Dang: Olive Tree International Academy, BFSU
Jiayi Peng: Shanghai World Foreign Language Academy
Ruidan Fan: Shenzhen College of International Education
Zifei Wang: The Affiliated International School of Shenzhen University

A chapter in Proceedings of the 3rd International Conference on Economic Development and Business Culture (ICEDBC 2023), 2024, pp 53-70 from Springer

Abstract: Abstract Historically, financial crises have crippled individuals, businesses and global economies; identifying prospective threats accurately can mitigate their repercussions. This paper examines the annual economic statistics in fourteen developed countries from 1870 to 2008. We demonstrate the variations of credit and money aggregates over time, analysing the reasons behind those changes in light of macroeconomic history. We build OLS and logit models to determine the underlying link between financial instability and major macroeconomic indicators, proving that growth in credit aggregates is a salient indicator for a higher likelihood of a financial crisis. We compare the predictive power of GDP, money and credit growth in different eras, taking the Second World War and the 1980s as turning points. The results confirm the significance of credit in forecasting. These findings contribute to the discussion of the predictability of financial crises and provide valuable insights for economic agents.

Keywords: Financial Crises; Forecasting; Predictive Regressions; Credit (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-246-0_7

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DOI: 10.2991/978-94-6463-246-0_7

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