Do International Reserve Holdings Still Predict Economic Crises? Insights from Recent Machine Learning Techniques

Nikolaos Giannakis (), Periklis Gogas (), Theophilos Papadimitriou (), Jamel Saadaoui and Emmanouil Sofianos
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Nikolaos Giannakis: Democritus University of Thrace
Periklis Gogas: Democritus University of Thrace
Theophilos Papadimitriou: Democritus University of Thrace

No 2025.6, Working Papers from International Network for Economic Research - INFER

Abstract: This study aims to predict currency, banking, and debt crises using a dataset of 184 crisis events and 2896 non-crisis cases from 79 countries (1970-2017). We tested eight machine learning methods: Logistic Regression, KNN, SVM, Random Forest, Balanced Random Forest, Balanced Bagging Classifier, Easy Ensemble Classifier, and Gradient Boosted Trees. The Balanced Random Forest had the best performance with a 72.91% balanced accuracy, predicting 149 out of 184 crises accurately. To address machine learning’s black-box issue, we used Variable Importance Measure (VIM) and Partial Dependence Plots (PDP). International reserve holdings, inflation rate, and current account balance were key predictors. Depleting international reserves at varying inflation levels signals impending crises, supporting the buffer effects of international reserves.

Keywords: Currency crises; banking crises; debt crises; international reserve holdings; inflation; machine learning; forecasting (search for similar items in EconPapers)
JEL-codes: F G (search for similar items in EconPapers)
Pages: 25 pages
Date: 2025
New Economics Papers: this item is included in nep-big, nep-fdg, nep-for and nep-mon
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