Estimating Probability of Banking Crisis using 2nd Generation Early Warning Systems: An Intercountry Study

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AKBAR MOUSAVI SEYED SALEH; SALMANI BEHZAD; HAGHIGHAT JAFAR; ASGHARPOUR HOSSEIN

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Paper Information

Journal: Iranian Journal of Economic Research Year:2021 | Volume:26 | Issue:88 Page(s): 9-43

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Title

Estimating Probability of Banking Crisis using 2nd Generation Early Warning Systems: An Intercountry Study

Author(s)

AKBAR MOUSAVI SEYED SALEH | SALMANI BEHZAD | HAGHIGHAT JAFAR | ASGHARPOUR HOSSEIN | Issue Writer Certificate

Keywords

Early Warning System

Banking Crisis

Post-crisis Bias

Multinomial Logit

Abstract

The main purpose of this study is to estimate the probability of Banking Crisis using the second generation of Early Warning Systems (logit models), for 13 selected high-middle income countries over the period of 1980-2016. In this regard, two types of logit models; binomial and multinomial, are estimated. The results of estimated binomial logit model show that three leading indicators of the crisis are broad liquidity ratio, stock price index and inflation, which are the main causes of crisis in the studied countries. These variables account for about 17 percent of the probability of a Banking Crisis. Then, to avoid postcrisis bias, the Multinomial Logit model is estimated. The empirical results confirm that above three leading indicators are warning. Also, among the above three variables, only stock price index variable with a probability of 12. 68%, causes the economy to exit the Banking Crisis and change its situation from the crisis/recovery period to the tranquil period. The Multinomial Logit model exhibit significantly better in-sample predictive abilities than the binomial logit model.

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APA: Copy

AKBAR MOUSAVI, SEYED SALEH, SALMANI, BEHZAD, HAGHIGHAT, JAFAR, & ASGHARPOUR, HOSSEIN. (2021). Estimating Probability of Banking Crisis using 2nd Generation Early Warning Systems: An Intercountry Study. IRANIAN ECONOMIC RESEARCH, 26(88 ), 9-43. SID. https://sid.ir/paper/956921/en

Vancouver: Copy

AKBAR MOUSAVI SEYED SALEH, SALMANI BEHZAD, HAGHIGHAT JAFAR, ASGHARPOUR HOSSEIN. Estimating Probability of Banking Crisis using 2nd Generation Early Warning Systems: An Intercountry Study. IRANIAN ECONOMIC RESEARCH[Internet]. 2021;26(88 ):9-43. Available from: https://sid.ir/paper/956921/en

IEEE: Copy

SEYED SALEH AKBAR MOUSAVI, BEHZAD SALMANI, JAFAR HAGHIGHAT, and HOSSEIN ASGHARPOUR, “Estimating Probability of Banking Crisis using 2nd Generation Early Warning Systems: An Intercountry Study,” IRANIAN ECONOMIC RESEARCH, vol. 26, no. 88 , pp. 9–43, 2021, [Online]. Available: https://sid.ir/paper/956921/en

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