Does Financial Connectedness Predict Crises?

By Camelia Minoiu, Chungwon Kang, V.S. Subrahmanian, Anamaria Berea

December 24, 2013

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Format: Chicago

Camelia Minoiu, Chungwon Kang, V.S. Subrahmanian, and Anamaria Berea. Does Financial Connectedness Predict Crises?, (USA: International Monetary Fund, 2013) accessed December 4, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The global financial crisis has reignited interest in models of crisis prediction. It has also raised the question whether financial connectedness - a possible source of systemic risk - can serve as an early warning indicator of crises. In this paper we examine the ability of connectedness in the global network of financial linkages to predict systemic banking crises. Our results indicate that increases in a country's financial interconnectedness and decreases in its neighbors' connectedness are associated with a higher probability of banking crises after controlling for macroeconomic fundamentals.

Subject: Banking crises, Early warning systems, Financial crises, Global financial crisis of 2008-2009, Systemic crises

Keywords: Banking crises, Banking crisis, Classification algorithm, Crisis incidence data, Crisis prediction, Debtor country, Early warning systems, Financial networks, Global, Global financial crisis of 2008-2009, Network indicator, Probability threshold, Sample crisis probability, Systemic crises, Systemic risk, WP

Publication Details

Pages:

44
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/267
Stock No:

WPIEA2013267
ISBN:

9781475554250
ISSN:

1018-5941

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