Forecasting Bank Failures in a Data-Rich Environment

Jean-Armand Gnagne and Kevin Moran
Additional contact information
Jean-Armand Gnagne: Laval University

No 20-13, Working Papers from Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management

Abstract: This paper develops a monitoring and forecasting model for the aggregate monthly number of commercial bank failures in the U.S. We extract key sectoral predictors from the large set of macroeconomic variables proposed by McCracken and Ng (2016) and incorporate them in a hurdle negative binomial (HNB) model to predict the number of monthly commercial bank failures. Our in-sample analysis uncovers a significant and robust relationship between the predictor related to the housing sector and the occurrence of bank failures, suggesting the importance of the link between developments in that sector and banking vulnerabilities. Out-of-sample exercices, conducted by sequentially re-estimating our HNB model at every step using the real-time vintages of the McCracken and Ng (2016) data, confirm the value of our forecasting approach, which outperforms other alternatives.

Keywords: Financial Regulation; Financial Crises; Factors Models; Diffusion Index Models. (search for similar items in EconPapers)
JEL-codes: E60 F37 F38 G01 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2020-06
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://chairemacro.esg.uqam.ca/wp-content/uploads ... _Bank_Failures-1.pdf (application/pdf)

Related works:
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:bbh:wpaper:20-13

Access Statistics for this paper

More papers in Working Papers from Chair in macroeconomics and forecasting, University of Quebec in Montreal's School of Management Contact information at EDIRC.
Bibliographic data for series maintained by Dalibor Stevanovic and Alain Guay ().