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Predicting Banking Crises: Japan's Financial Crisis in International Comparison

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  • Michael Hutchison
  • Kathleen McDill

Abstract

This article compares features of Japan's banking crisis with the experiences of other industrial economies. Using a probit statistical prediction model, we find that Japan's banking crisis follows a pattern found in many other industrial countries, i.e. formal tests do not distinguish Japan as a special case. Our model predicts that Japan was particularly "vulnerable" to a banking crisis in the early 1990s. That is, the model indicated that there was a 50 percent probability of a banking crisis in Japan in 1992 given the configuration of asset prices, credit conditions and other economic factors prevailing at the time. The main factor distinguishing Japan from other industrial countries is the slow and largely ineffectual policy response by the Ministry of Finance to resolve the country's financial crisis.

Suggested Citation

  • Michael Hutchison & Kathleen McDill, 1999. "Predicting Banking Crises: Japan's Financial Crisis in International Comparison," Asia Pacific Economic Papers 289, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:csg:ajrcau:289
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    File URL: https://crawford.anu.edu.au/pdf/pep/pep-289.pdf
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    References listed on IDEAS

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    1. Graciela Kaminsky & Saul Lizondo & Carmen M. Reinhart, 1998. "Leading Indicators of Currency Crises," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 1-48, March.
    2. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    3. Mr. Burkhard Drees & Ceyla Pazarbasioglu, 1995. "The Nordic Banking Crises: Pitfalls in Financial Liberalization?," IMF Working Papers 1995/061, International Monetary Fund.
    4. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
    5. Barry Eichengreen & Andrew K. Rose, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," NBER Working Papers 6370, National Bureau of Economic Research, Inc.
    6. Graciela Laura Kaminsky, 1997. "Leading Indicators of Currency Crises," IMF Working Papers 1997/079, International Monetary Fund.
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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises

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