Advanced Search
MyIDEAS: Login

Working Paper 190 - Early Warning Systems and Systemic Banking Crises in Low Income Countries: A Multinomial Logit Approach

Contents:

Author Info

Abstract

This paper estimates an early warning system for predicting systemic banking crises in a sample of low income countries in Sub-Saharan Africa. Since the average duration of crises in this sample of countries is longer than one year, the predictive performance of standard binomial logit models is likely to be hampered by the so-called crisis duration bias. The bias arises from the decision to either treat crisis years after the onset of a crisis as non-crisis years or remove them altogether from the model. To overcome this potential drawback, we propose a multinomial logit approach, which is shown to improve the predictive power compared to the binomial logit model. Our results suggest that crisis events in low income countries are associated with low economic growth, drying up of banking system liquidity and widening of foreign exchange net open positions. JEL Classification: C52, G21, G28, E58. Keywords: Banking crises, Systemic risk, Early warning systems, Low income countries, Sub-Saharan Africa, Logit estimation, Financial regulation.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/Working_Paper_190_-_Early_Warning_Systems_and_Systemic_Banking_Crises_in_Low_Income_Countries-_A_Multinomial_Logit_Approach.pdf
Download Restriction: no

Bibliographic Info

Paper provided by African Development Bank in its series Working Paper Series with number 993.

as in new window
Length:
Date of creation: 23 Dec 2013
Date of revision:
Handle: RePEc:adb:adbwps:993

Contact details of provider:
Postal: 15 Avenue du Ghana P.O.Box 323-1002 Tunis-Belvedère, Tunisia
Phone: (+216) 71 10 39 00
Fax: (225) 21.77.53
Email:
Web page: http://www.afdb.org/en/knowledge/publications/
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Demirguc-Kunt, Asli & Detragiache, Enrica, 1999. "Does deposit insurance increase banking system stability ? An empirical investigation," Policy Research Working Paper Series 2247, The World Bank.
  2. D. McFadden & J. Hausman, 1981. "Specification Tests for the Multinominal Logit Model," Working papers 292, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. Fratzscher, Marcel & Matthieu Bussiere, 2003. "Towards A New Early Warning System of Financial Crises," Royal Economic Society Annual Conference 2003 81, Royal Economic Society.
  4. van den Berg, Jeroen & Candelon, Bertrand & Urbain, Jean-Pierre, 2008. "A cautious note on the use of panel models to predict financial crises," Economics Letters, Elsevier, vol. 101(1), pages 80-83, October.
  5. Jürgen Von Hagen & Tai-Kuang Ho, 2007. "Money Market Pressure and the Determinants of Banking Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(5), pages 1037-1066, 08.
  6. Wong, Jim & Wong, Tak-Chuen & Leung, Phyllis, 2010. "Predicting banking distress in the EMEAP economies," Journal of Financial Stability, Elsevier, vol. 6(3), pages 169-179, September.
  7. Inoue, Atsushi & Kilian, Lutz, 2006. "On the selection of forecasting models," Journal of Econometrics, Elsevier, vol. 130(2), pages 273-306, February.
  8. Beck, T.H.L. & Demirgüç-Kunt, A. & Levine, R., 2006. "Bank concentration, competition, and crises: First results," Open Access publications from Tilburg University urn:nbn:nl:ui:12-3125498, Tilburg University.
  9. Beck, T.H.L. & Munzele Maimbo, S. & Faye, I. & Triki, T., 2011. "Financing Africa: Through the crisis and beyond," Open Access publications from Tilburg University urn:nbn:nl:ui:12-4758568, Tilburg University.
  10. Demirguc, Asli & Detragiache, Enrica, 2000. "Monitoring Banking Sector Fragility: A Multivariate Logit Approach," World Bank Economic Review, World Bank Group, vol. 14(2), pages 287-307, May.
  11. Barrell, Ray & Davis, E. Philip & Karim, Dilruba & Liadze, Iana, 2010. "Bank regulation, property prices and early warning systems for banking crises in OECD countries," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2255-2264, September.
  12. Männasoo, Kadri & Mayes, David G., 2009. "Explaining bank distress in Eastern European transition economies," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 244-253, February.
  13. Claudio Borio & Mathias Drehmann, 2009. "Assessing the risk of banking crises - revisited," BIS Quarterly Review, Bank for International Settlements, March.
  14. Davis, E. Philip & Karim, Dilruba, 2008. "Comparing early warning systems for banking crises," Journal of Financial Stability, Elsevier, vol. 4(2), pages 89-120, June.
  15. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  16. Alessi, Lucia & Detken, Carsten, 2011. "Quasi real time early warning indicators for costly asset price boom/bust cycles: A role for global liquidity," European Journal of Political Economy, Elsevier, vol. 27(3), pages 520-533, September.
  17. Aditya Narain & Pau Rabanal & Steen Byskov, 2003. "Prudential Issues in Less Diversified Economies," IMF Working Papers 03/198, International Monetary Fund.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:adb:adbwps:993. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Adeleke Oluwole Salami).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.