Application of logit model and self-organizing maps (SOMs) for the prediction of financial crisis periods in US economy
Purpose – The purpose of this paper is to examine two different approaches in the prediction of the economic recession periods in the US economy. Design/methodology/approach – A logit regression was applied and the prediction performance in two out-of-sample periods, 2007-2009 and 2010 was examined. On the other hand, feed-forwards neural networks with Levenberg-Marquardt error backpropagation algorithm were applied and then neural networks self-organizing map (SOM) on the training outputs was estimated. Findings – The paper presents the cluster results from SOM training in order to find the patterns of economic recessions and expansions. It is concluded that logit model forecasts the current financial crisis period at 75 percent accuracy, but logit model is useful as it provides a warning signal three quarters before the current financial crisis started officially. Also, it is estimated that the financial crisis, even if it reached its peak in 2009, the economic recession will be continued in 2010 too. Furthermore, the patterns generated by SOM neural networks show various possible versions with one common characteristic, that financial crisis is not over in 2009 and the economic recession will be continued in the USA even up to 2011-2012, if government does not apply direct drastic measures. Originality/value – Both logistic regression (logit) and SOMs procedures are useful. The first one is useful to examine the significance and the magnitude of each variable, while the second one is useful for clustering and identifying patterns in economic recessions and expansions.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 2 (2010)
Issue (Month): 2 (June)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://www.emeraldinsight.com/jfep.htm Email:
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.:
- Reinhart, Carmen & Kaminsky, Graciela & Lizondo, Saul, 1998.
"Leading Indicators of Currency Crises,"
6981, University Library of Munich, Germany.
- Wen-Ying Cheng & Ender Su & Sheng-Jung Li, 2006. "A Financial Distress Pre-Warning Study by Fuzzy Regression Model of TSE-Listed Companies," Asian Academy of Management Journal of Accounting and Finance (AAMJAF), Penerbit Universiti Sains Malaysia, vol. 2(2), pages 75-93.
- Cha, Myung Soo, 2003. "Did Takahashi Korekiyo Rescue Japan from the Great Depression?," The Journal of Economic History, Cambridge University Press, vol. 63(01), pages 127-144, March.
- Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
- Marco Fioramanti, 2006.
"Predicting Sovereign Debt Crises Using Artificial Neural Networks: A Comparative Approach,"
ISAE Working Papers
72, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
- Fioramanti, Marco, 2008. "Predicting sovereign debt crises using artificial neural networks: A comparative approach," Journal of Financial Stability, Elsevier, vol. 4(2), pages 149-164, June.
- 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.
- Eichengreen, Barry & Rose, Andrew K, 1998. "Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises," CEPR Discussion Papers 1828, C.E.P.R. Discussion Papers.
- James G. MacKinnon, 1995.
"Numerical Distribution Functions for Unit Root and Cointegration Tests,"
918, Queen's University, Department of Economics.
- MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec..
- Jiranyakul, Komain, 2006. "The Impact of International Oil Prices on Industrial Production: The Case of Thailand," MPRA Paper 47035, University Library of Munich, Germany.
- Jeffrey A. Frankel & Andrew K. Rose, 1996.
"Currency crashes in emerging markets: an empirical treatment,"
International Finance Discussion Papers
534, Board of Governors of the Federal Reserve System (U.S.).
- Frankel, Jeffrey A. & Rose, Andrew K., 1996. "Currency crashes in emerging markets: An empirical treatment," Journal of International Economics, Elsevier, vol. 41(3-4), pages 351-366, November.
- Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
- Robert J. Gordon, 1986. "The American Business Cycle: Continuity and Change," NBER Books, National Bureau of Economic Research, Inc, number gord86-1, September.
- Reuven Glick & Ramon Moreno, 1999.
"Money and credit, competitiveness, and currency crises in Asia and Latin America,"
Pacific Basin Working Paper Series
99-01, Federal Reserve Bank of San Francisco.
- Glick, R. & Moreno, R., 1999. "Money and Credit, Competitiveness, and Currency Crises in Asia and Latin America," Papers 99-01, Economisch Institut voor het Midden en Kleinbedrijf-.
- Geoffrey H. Moore, 1983. "Some Secular Changes in Business Cycles," NBER Chapters, in: Business Cycles, Inflation, and Forecasting, 2nd edition, pages 161-168 National Bureau of Economic Research, Inc.
- Robert J. Gordon, 1986. "Front matter, The American Business Cycle. Continuity and Change," NBER Chapters, in: The American Business Cycle: Continuity and Change, pages -15 National Bureau of Economic Research, Inc.
- Reinhart, Carmen & Kaminsky, Graciela, 1999.
"The twin crises: The causes of banking and balance of payments problems,"
14081, University Library of Munich, Germany.
- 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.
- Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
- Reinhart, Carmen & Kaminsky, Graciela, 2000.
"Las crisis gemelas: las causas de los problemas bancarios y de balanza de pagos
[The twin crises: Te causes of banking and balance of payments problems]," MPRA Paper 13842, University Library of Munich, Germany.
- Pamela K. Coats & L. Franklin Fant, 1993. "Recognizing Financial Distress Patterns Using a Neural Network Tool," Financial Management, Financial Management Association, vol. 22(3), Fall.
- Geoffrey H. Moore, 1983. "Security Markets and Business Cycles," NBER Chapters, in: Business Cycles, Inflation, and Forecasting, 2nd edition, pages 139-160 National Bureau of Economic Research, Inc.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, September.
- Asli DemirgÃ¼Ã§-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
- Zhang, Guoqiang & Y. Hu, Michael & Eddy Patuwo, B. & C. Indro, Daniel, 1999. "Artificial neural networks in bankruptcy prediction: General framework and cross-validation analysis," European Journal of Operational Research, Elsevier, vol. 116(1), pages 16-32, July.
When requesting a correction, please mention this item's handle: RePEc:eme:jfeppp:v:2:y:2010:i:2:p:98-125. 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: (Virginia Chapman)
If references are entirely missing, you can add them using this form.