 Dynamic forecasting of banking crises with a Qual VARJournal of Applied Economics, 2022, vol. 25, issue 1, 477-503 Abstract: This paper applies a Qual VAR approach to generate a continuous banking crisis indicator from an underlying latent variable using a Markov Chain Monte Carlo algorithm. Four decades of banking crises are assessed by accounting for the evolutionary nature of precursors, as measured through periodic, regional, and developmental effects using a representative sample of countries. Aggregate results from forecast error variance decomposition show that banking sector variables explain nearly half of total variation, external sector a third and real sector a fifth. Findings suggest that recursive out-of-sample forecasts up to 12-months preceding a banking crisis render vital early warning signals, and as based on quarterly data, support expeditious response times. In out-of-sample forecasting, the Qual VAR outperforms a probit model. Improved forecasting performance may assist banking oversight departments and support remediation efforts of policymakers to adequately and timeously respond to banking crises. Date: 2022 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:recsxx:v:25:y:2022:i:1:p:477-503 Ordering information: This journal article can be ordered from DOI: 10.1080/15140326.2020.1816132 Access Statistics for this article Journal of Applied Economics is currently edited by Jorge M. Streb More articles in Journal of Applied Economics from Taylor & Francis Journals |
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