A Model to Assess the Probabilities of Growth, Fiscal, and Financial Crises
IMF Working Papers, December 14, 2017
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- A Model to Assess the Probabilities of Growth, Fiscal, and Financial Crises
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Bibliographic details
- Authors: Suman S Basu, Marcos Chamon, Christopher W. Crowe
- Published: December 14, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484333143.001
Summary and Objective
- Summarizes a suite of early warning models to assess the probabilities of growth, fiscal, and financial crises in advanced economies and emerging markets.
- Estimates separate signal-extraction models for each type of crisis and for each sample of countries.
- Uses model results to generate “histories of vulnerabilities” for countries, regions, and the world.
- For the global financial crisis, reports that vulnerabilities in advanced economies were rooted in the bursting of leveraged bubbles, while vulnerabilities in emerging markets stemmed from lengthy booms in credit and asset prices combined with growing weaknesses in the corporate and external sectors.
Methodology
- Approach: Separate signal-extraction models estimated for each crisis type (growth, fiscal, financial) and for each country sample (advanced economies and emerging markets).
- Outputs: Probabilities of crises and constructed “histories of vulnerabilities” at country, regional, and global levels.
Key Findings
- Advanced-economy vulnerabilities around the global financial crisis were primarily associated with the bursting of leveraged bubbles.
- Emerging-market vulnerabilities around the global financial crisis were primarily associated with:
- Lengthy booms in credit and asset prices.
- Growing weaknesses in the corporate sector.
- Growing weaknesses in the external sector.
Scope and Classification
- Subject areas listed: Asset prices; Balance of payments; Financial crises; Financial statements; Global financial crisis of 2008-2009; Prices; Public financial management (PFM); Sudden stops.
- Keywords included: Asset prices; crisis incidence; crisis probability; Early warning model; financial crisis; financial crisis model; Financial statements; fiscal crisis; Global; Global financial crisis of 2008-2009; Growth crisis; probability rating; sudden stop; Sudden stops; WP.