Early warning models for systemic banking crises: Can political indicators improve prediction?

Tran Huynh and Silke Uebelmesser

European Journal of Political Economy, 2024, vol. 81, issue C

Abstract: This study provides a novel attempt to assess whether an early warning system (EWS) for systemic banking crises can produce better predictions when political indicators are used alongside traditional macro-financial indicators. Based on a dataset covering 32 advanced economies for the period 1975–2017, we show that the inclusion of political indicators significantly improves the predictive performance of the model. Our results suggest several channels, related to the role of constitutions and policy predictability, through which the political environment could affect the stability of a banking system. In particular, we find that majority governments, left-wing governments, and a longer time in office of the executive party are negatively correlated with systemic risk. This is robust to a large number of different specifications. Furthermore, we find that long-established institutional systems and plurality electoral systems (compared to proportional representation systems) are associated with a lower likelihood of crises. At the same time, crises are more likely when the incumbent government represents a nationalist platform.

Keywords: Early warning systems; Systemic banking crises; Vulnerability; Political indicators; Macro-financial indicators (search for similar items in EconPapers)
JEL-codes: C35 C53 E60 F37 G01 G28 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0176268023001283
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Early warning models for systemic banking crises: can political indicators improve prediction? (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:81:y:2024:i:c:s0176268023001283

DOI: 10.1016/j.ejpoleco.2023.102484

Access Statistics for this article

European Journal of Political Economy is currently edited by J. De Haan, A. L. Hillman and H. W. Ursprung

More articles in European Journal of Political Economy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().