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Can We Predict Financial Crises?

In: Proceedings of the 3rd International Conference on Economic Development and Business Culture (ICEDBC 2023)

Author

Listed:
  • Wen Dang

    (Olive Tree International Academy, BFSU)

  • Jiayi Peng

    (Shanghai World Foreign Language Academy)

  • Ruidan Fan

    (Shenzhen College of International Education)

  • Zifei Wang

    (The Affiliated International School of Shenzhen University)

Abstract

Historically, financial crises have crippled individuals, businesses and global economies; identifying prospective threats accurately can mitigate their repercussions. This paper examines the annual economic statistics in fourteen developed countries from 1870 to 2008. We demonstrate the variations of credit and money aggregates over time, analysing the reasons behind those changes in light of macroeconomic history. We build OLS and logit models to determine the underlying link between financial instability and major macroeconomic indicators, proving that growth in credit aggregates is a salient indicator for a higher likelihood of a financial crisis. We compare the predictive power of GDP, money and credit growth in different eras, taking the Second World War and the 1980s as turning points. The results confirm the significance of credit in forecasting. These findings contribute to the discussion of the predictability of financial crises and provide valuable insights for economic agents.

Suggested Citation

  • Wen Dang & Jiayi Peng & Ruidan Fan & Zifei Wang, 2024. "Can We Predict Financial Crises?," Advances in Economics, Business and Management Research, in: Shehnaz Tehseen & Mohd Naseem Niaz Ahmad & Rafia Afroz (ed.), Proceedings of the 3rd International Conference on Economic Development and Business Culture (ICEDBC 2023), pages 53-70, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-246-0_7
    DOI: 10.2991/978-94-6463-246-0_7
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