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Early Warning Indicator of financial crises for V4 Countries

Author

Listed:
  • Michal Mares

    (University of Economics, Prague)

  • Martin Slany

    (University of Economics, Prague)

Abstract

This paper represents an early warning indicator of financial crises applied to the data of the Czech Republic, Poland, Hungary and Slovakia (V4 counties) between 2005 and 2018. Based on the previous research, 16 indicators were selected to build up the composite indicator of cyclical components ? so. Composite Index of Financial Instability (CIFI), and discussed its development. The relevance of the presented indicator, especially in the context of the Euro-American financial crisis of 2008-2009, is demonstrated in both graphical and econometric analysis using panel logistic regression. The conclusion implies that all V4 countries had experienced a high instability in connection with the global financial crisis 2008/2009 and implies different developments in financial conditions in recent years. The output of econometric model confirms positive relation between the value of CIFI and probability of financial crises occurrence. An increase in the CIFI per unit indicates an increase in probability of occurrence crisis approximately by 7 %. In spite of all its limitations, the usefulness of the composite index in the context of economic policymaking is proven by the analysis.

Suggested Citation

  • Michal Mares & Martin Slany, 2018. "Early Warning Indicator of financial crises for V4 Countries," Proceedings of Economics and Finance Conferences 6910382, International Institute of Social and Economic Sciences.
    • Handle: RePEc:sek:iefpro:6910382
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    File URL: https://iises.net/proceedings/10th-economics-finance-conference-rome/table-of-content/detail?cid=69&iid=024&rid=10382
    File Function: First version, 2018
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    More about this item

    Keywords

    financial crises; early warning indicator; composite index; Visegrad countries; panel regression;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G01 - Financial Economics - - General - - - Financial Crises

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