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Assessing the Impact of Private Sector Balance Sheets Effects on Financial Crises: a comparison of Bayesian and information-theoretic measures of model uncertainty

Melvyn Weeks (), S. Godsill and Mark Stone

No 162, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: This paper examines the intensity of financial crises during the 1990s with a view to informing crisis prevention and mitigation policies. We compare the performance of a full Bayesian and an information-theoretic approach in addressing the econometric problems posed by the lack of a unifying theoretical model, a large number of crisis indicators, and a number of additional data shortfalls. The results indicate that the probability and intensity of financial crises are heightened by corporate illiquidity and leverage, a lack of nonbank sources of financing, excessive domestic relative to foreign currency liquidity and a cutoff of capital inflows. The implications are that policy measures aimed at improving the operation and monitoring of the corporate and nonbank financial sectors could reduce crisis vulnerability

Keywords: Model Uncertainty; Financial Crises; Bayesian Inference; AIC; Kullback Leibler; Model Averaging (search for similar items in EconPapers)
JEL-codes: B41 C21 C23 (search for similar items in EconPapers)
Date: 2004-08-11
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