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Use of Machine Learning in Early Warning Systems for Financial Crises Within the Global Financial System

In: AI-Driven Revolution Transforming the Business Landscape

Author

Listed:
  • Renato Salvador Coutinho
  • Paulo Maurício Selig
  • Aran B. Tcholakian Morales
  • Fernando Ostuni Gauthier

Abstract

The aim of this chapter is to map the empirical knowledge to verify whether early warning systems (EWS) that use machine learning (ML) techniques show better predictive performance in forecasting financial crises compared to those developed using traditional techniques based on the practices of institutions in the global financial system. To uncover trends and practices related to the topic, we identified a need to explore the so-called gray literature (GL) through the multivocal literature review (MLR) method, given that the referenced literature is predominantly found in the databases of monetary authorities and supranational institutions of the financial system. This knowledge extraction allowed us to find indications and a reasonable consensus that the predictive capacity of EWS for financial crises is leveraged by ML. Consequently, the application of these techniques to develop EWS represents, for macroprudential policymakers, a huge opportunity for improving evidence-based decision-making.

Suggested Citation

  • Renato Salvador Coutinho & Paulo Maurício Selig & Aran B. Tcholakian Morales & Fernando Ostuni Gauthier, 2025. "Use of Machine Learning in Early Warning Systems for Financial Crises Within the Global Financial System," World Scientific Book Chapters, in: Tereza Raquel Merlo (ed.), AI-Driven Revolution Transforming the Business Landscape, chapter 3, pages 39-63, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800616578_0003
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    JEL classification:

    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • M1 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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