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Could Early Warning Systems Have Helped To Predict the Sub-Prime Crisis?

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Author Info

  • E. Philip Davis

    (Brunel University, Uxbridge, Middlesex, UB8 3PH and NIES, e_philip_davis@msn.com)

  • Dilruba Karim

    (Brunel University, Uxbridge, Middlesex, UB8 3PH, dilruba.karim@brunel.ac.uk)

Abstract

One of the features of the sub-prime crisis, that began in August 2007, was its unexpected nature. It came as a surprise not only to most financial market participants but also in some degree to the policy community. In this context, we seek to assess whether early warning systems based on the logit and binomial tree approaches on the UK and US economies could have helped to warn about the crisis. We also consider a `check list approach' of indicators based on history. Although not all of the complementary approaches are successful, we contend that our work suggests that a broadening of approaches to macroprudential analysis is appropriate.

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Bibliographic Info

Article provided by National Institute of Economic and Social Research in its journal National Institute Economic Review.

Volume (Year): 206 (2008)
Issue (Month): 1 (October)
Pages: 35-47

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Handle: RePEc:sae:niesru:v:206:y:2008:i:1:p:35-47

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Related research

Keywords: Sub-prime crisis; early warning; financial instability; macroprudential analysis; JEL Classifications: E44; E58;

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Cited by:
  1. Efthyvoulou, Georgios, 2012. "The impact of financial stress on sectoral productivity," Economics Letters, Elsevier, vol. 116(2), pages 240-243.
  2. Karl Aiginger, 2011. "Why Growth Performance Differed across Countries in the Recent Crisis: the Impact of Pre-crisis Conditions," Review of Economics & Finance, Better Advances Press, Canada, vol. 1, pages 35-52, August.
  3. Zhongbo Jing & Jakob de Haan & Jan Jacobs & Haizhen Yang, 2013. "Identifying Banking Crises Using Money Market Pressure: New Evidence For a Large Set of Countries," DNB Working Papers 397, Netherlands Central Bank, Research Department.
  4. Behn, Markus & Detken, Carsten & Peltonen, Tuomas A. & Schudel, Willem, 2013. "Setting countercyclical capital buffers based on early warning models: would it work?," Working Paper Series 1604, European Central Bank.
  5. Schuetz, Sebastian Alexander, 2010. "Structured Finance Influence on Financial Market Stability – Evaluation of Current Regulatory Developments," MPRA Paper 23574, University Library of Munich, Germany.
  6. Avadanei, Anamaria, 2010. "Surse ale instabilitatii financiare in contextul crizei internationale. A Literature Review
    [Sources of Financial Instability in the context of the Financial Crisis. A Literature Review]
    ," MPRA Paper 28449, University Library of Munich, Germany.
  7. Karl Aiginger, 2009. "Strengthening the Resilience of an Economy. Strategies to Prevent another Crisis," WIFO Working Papers 338, WIFO.
  8. Rainer Masera, 2010. "Reforming financial systems after the crisis: a comparison of EU and USA," PSL Quarterly Review, Economia civile, vol. 63(255), pages 299-362.
  9. Crafts, Nicholas & Fearon, Peter, 2010. "Lessons from the 1930s' Great Depression," CEPR Discussion Papers 8057, C.E.P.R. Discussion Papers.
  10. Karl Aiginger, 2010. "Post Crisis Policy: Some Reflections of a Keynesian Economist," WIFO Working Papers 371, WIFO.
  11. Fiordelisi, Franco & Mare, Davide Salvatore, 2013. "Probability of default and efficiency in cooperative banking," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 26(C), pages 30-45.
  12. AIGINGER Karl, 2011. "Why Performance Differed Across Countries In The Recent Crisis," Revista Economica, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 55(2), pages 20-27.
  13. Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung & Conseil d'‘Analyse � (ed.), 2010. "Evaluer la performance économique, le bien-être et la soutenabilité. Rapport du Conseil d’analyse économique et du Conseil allemand des experts en économie," Occasional Reports / Expertisen, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung, number 75369.

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