A Markov-Chain Measure of Systemic Banking Crisis Frequency

Demosthenes Tambakis ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: This study nests historical evidence for credit growth-fuelled financial instability in a 2-state non-homogeneous Markov chain with logistic crisis incidence. A long-run frequency measure is defined and calibrated for 17 advanced economies from 1870-2016. It is found that historical (implied) crisis frequencies display a V (J )-pattern over time. A key implication is that policies strengthening capital adequacy contribute more to systemic stability than expanding deposit insurance or curbing credit booms.

Keywords: Credit cycle; Systemic banking crises; Markov chain (search for similar items in EconPapers)
JEL-codes: C15 E30 E58 G01 (search for similar items in EconPapers)
Date: 2020-09-03
New Economics Papers: this item is included in nep-ban, nep-ias, nep-mac and nep-rmg
Note: dnt22
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: A Markov chain measure of systemic banking crisis frequency (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:2083

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