IDEAS home Printed from https://ideas.repec.org/p/cfe/wpcefa/2014_05.html
   My bibliography  Save this paper

The Spatial Probit Model – An Application to the Study of Banking Crises at the End of the 90’s

Author

Listed:
  • Victor Augusto Mendes dos Santos

    (CMVM and CEFAGE-UÉ)

Abstract

We use a spatial Probit model to study the effect of contagion between banking systems of different countries. Applied to the late 90Â’s banking crisis in Asia we show that the phenomena of contagion is better seized using a spatial than a traditional Probit model. Unlike the latter, the spatial Probit model allows one to consider the cascade of cross and feedback effects of contagion that result from the outbreak of one initial crisis in one country or system. These contagion effects may result either from business connections between institutions of different countries or from institutional similarities between banking systems.

Suggested Citation

  • Victor Augusto Mendes dos Santos, 2014. "The Spatial Probit Model – An Application to the Study of Banking Crises at the End of the 90Â’s," CEFAGE-UE Working Papers 2014_05, University of Evora, CEFAGE-UE (Portugal).
    • Handle: RePEc:cfe:wpcefa:2014_05
    as

    Download full text from publisher

    File URL: https://api.cefage.uevora.pt/assets/e5365fee-8e4e-4a60-899d-d028e4c6be2a
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Kurt J. Beron & James C. Murdoch & Wim P. M. Vijverberg, 2003. "Why Cooperate? Public Goods, Economic Power, and the Montreal Protocol," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 286-297, May.
    2. Frankel, Jeffrey A & Rose, Andrew K, 1996. "Currency Crashes in Emerging Markets: Empirical Indicators," CEPR Discussion Papers 1349, C.E.P.R. Discussion Papers.
    3. Andrew Berg & Eduardo Borensztein & Catherine Pattillo, 2005. "Assessing Early Warning Systems: How Have They Worked in Practice?," IMF Staff Papers, Palgrave Macmillan, vol. 52(3), pages 1-5.
    4. Upper, Christian & Worms, Andreas, 2004. "Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?," European Economic Review, Elsevier, vol. 48(4), pages 827-849, August.
    5. Hans Degryse & Grégory Nguyen, 2004. "Interbank exposures: an empirical examination of systemic risk in the Belgian banking system," Working Paper Research 43, National Bank of Belgium.
    6. Reuven Glick & Michael M. Hutchison, 1999. "Banking and currency crises; how common are twins?," Proceedings, Federal Reserve Bank of San Francisco, issue Sep.
    7. Schularick Moritz, 2011. "140 Years of Financial Crises: Old Dog, New Tricks," Jahrbuch für Wirtschaftsgeschichte / Economic History Yearbook, De Gruyter, vol. 52(1), pages 45-68, June.
    8. 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.
    9. Demirguc-Kunt, Asli & Detragiache, Enrica, 2002. "Does deposit insurance increase banking system stability? An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 49(7), pages 1373-1406, October.
    10. Òscar Jordà & Moritz Schularick & Alan M Taylor, 2011. "Financial Crises, Credit Booms, and External Imbalances: 140 Years of Lessons," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(2), pages 340-378, June.
    11. Hali J. Edison, 2003. "Do indicators of financial crises work? An evaluation of an early warning system," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(1), pages 11-53.
    12. George Sheldon & Martin Maurer, 1998. "Interbank Lending and Systemic Risk: An Empirical Analysis for Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 134(IV), pages 685-704, December.
    13. Álvaro A. Novo, 2003. "Contagious Currency Crisis: A Spatial Probit Approach," Working Papers w200305, Banco de Portugal, Economics and Research Department.
    14. Demirguc-Kunt, Asli & Detragiache, Enrica & Gupta, Poonam, 2006. "Inside the crisis: An empirical analysis of banking systems in distress," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 702-718, August.
    15. James R. Barth & Gerard Caprio Jr. & Ross Levine, 2001. "Banking Systems around the Globe: Do Regulation and Ownership Affect Performance and Stability?," NBER Chapters, in: Prudential Supervision: What Works and What Doesn't, pages 31-96, National Bureau of Economic Research, Inc.
    16. Barth, James R. & Caprio, Gerard Jr. & Levine, Ross, 2004. "Bank regulation and supervision: what works best?," Journal of Financial Intermediation, Elsevier, vol. 13(2), pages 205-248, April.
    17. Charles F. Manski, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(3), pages 531-542.
    18. Demirguc, Asli & Detragiache, Enrica, 2000. "Monitoring Banking Sector Fragility: A Multivariate Logit Approach," The World Bank Economic Review, World Bank, vol. 14(2), pages 287-307, May.
    19. John H. Boyd & Bruce A. Champ, 2003. "Inflation and financial market performance: what have we learned in the last ten years?," Working Papers (Old Series) 0317, Federal Reserve Bank of Cleveland.
    20. Daniel C. Hardy & Ceyla Pazarbasioglu, 1999. "Determinants and Leading Indicators of Banking Crises: Further Evidence," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 1-1.
    21. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
    22. Dornbusch, Rudiger & Park, Yung Chul & Claessens, Stijn, 2000. "Contagion: Understanding How It Spreads," The World Bank Research Observer, World Bank, vol. 15(2), pages 177-197, August.
    23. Iman van Lelyveld & Franka Liedorp, 2006. "Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
    24. Vijverberg, Wim P. M., 1997. "Monte Carlo evaluation of multivariate normal probabilities," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 281-307.
    25. Ms. Enrica Detragiache & Asli Demirgüç-Kunt, 1998. "Financial Liberalization and Financial Fragility," IMF Working Papers 1998/083, International Monetary Fund.
    26. Bettina H. Aten, 1997. "Does Space Matter? International Comparisons of the Prices of Tradables and Nontradables," International Regional Science Review, , vol. 20(1-2), pages 35-52, April.
    27. 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.
    28. Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2003. "Bank Concentration and Crises," NBER Working Papers 9921, National Bureau of Economic Research, Inc.
    29. Lehar, Alfred, 2005. "Measuring systemic risk: A risk management approach," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2577-2603, October.
    30. Pedro Amaral & Luc Anselin & Daniel Arribas-Bel, 2013. "Testing for spatial error dependence in probit models," Letters in Spatial and Resource Sciences, Springer, vol. 6(2), pages 91-101, July.
    31. 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.
    32. Grosse, Robert & Goldberg, Lawrence G., 1991. "Foreign bank activity in the United States: An analysis by country of origin," Journal of Banking & Finance, Elsevier, vol. 15(6), pages 1093-1112, December.
    33. Berg, Andrew & Pattillo, Catherine, 1999. "Predicting currency crises:: The indicators approach and an alternative," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 561-586, August.
    34. Furfine, Craig H, 2003. "Interbank Exposures: Quantifying the Risk of Contagion," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 111-128, February.
    35. Daniel P. McMillen, 1995. "Spatial Effects in Probit Models: A Monte Carlo Investigation," Advances in Spatial Science, in: Luc Anselin & Raymond J. G. M. Florax (ed.), New Directions in Spatial Econometrics, chapter 9, pages 189-228, Springer.
    36. Eric Santor, 2003. "Banking Crises and Contagion: Empirical Evidence," Staff Working Papers 03-1, Bank of Canada.
    37. Asli Demirgüç-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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Liang, Cong & Hui, Eddie C.M. & Yip, Tsz Leung & Huang, Yaoxuan, 2020. "Private land use for public housing projects: The Influence of a Government Announcement on Housing Markets in Hong Kong," Land Use Policy, Elsevier, vol. 99(C).
    2. Jiafeng Gu, 2024. "Neighborhood Does Matter: Farmers’ Local Social Interactions and Land Rental Behaviors in China," Land, MDPI, vol. 13(1), pages 1-17, January.
    3. Shugo Yamamoto, 2015. "Banking Network Amplification Effects on Cross-Border Bank Flows," Discussion Papers 1533, Graduate School of Economics, Kobe University.
    4. Jiang, Hai & Tang, Shenfeng & Li, Lifang & Xu, Fangming & Di, Qian, 2022. "Re-examining the Contagion Channels of Global Financial Crises: Evidence from the Twelve Years since the US Subprime Crisis," Research in International Business and Finance, Elsevier, vol. 60(C).
    5. Liang, Cong & Hui, Eddie C.M. & Yip, Tsz Leung, 2018. "Time on market (TOM): The impact of new residential stamp duty," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 503(C), pages 1117-1130.
    6. Acedański, Jan & Karkowska, Renata, 2022. "Instability spillovers in the banking sector: A spatial econometrics approach," The North American Journal of Economics and Finance, Elsevier, vol. 61(C).
    7. Gong, Pu & Weng, Yingliang, 2016. "Value-at-Risk forecasts by a spatiotemporal model in Chinese stock market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 441(C), pages 173-191.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Amaral, Andrea & Abreu, Margarida & Mendes, Victor, 2014. "The spatial Probit model—An application to the study of banking crises at the end of the 1990’s," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 415(C), pages 251-260.
    2. Demirgüç-Kunt, Asli & Detragiache, Enrica, 2005. "Cross-Country Empirical Studies of Systemic Bank Distress: A Survey," National Institute Economic Review, National Institute of Economic and Social Research, vol. 192, pages 68-83, April.
    3. K. Batu Tunay, 2010. "Banking Crises and Early Warning Systems: A Model Suggestion for Turkish Banking Sector," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 4(1), pages 9-46.
    4. Wong, Jim & Wong, Tak-Chuen & Leung, Phyllis, 2010. "Predicting banking distress in the EMEAP economies," Journal of Financial Stability, Elsevier, vol. 6(3), pages 169-179, September.
    5. Pavel Trunin & M. Kamenskih, 2007. "Monitoring Financial Stability In Developing Economies (Case of Russia)," Research Paper Series, Gaidar Institute for Economic Policy, issue 111.
    6. Kauko, Karlo, 2014. "How to foresee banking crises? A survey of the empirical literature," Economic Systems, Elsevier, vol. 38(3), pages 289-308.
    7. Ari, Ali, 2008. "An Early Warning Signals Approach for Currency Crises: The Turkish Case," MPRA Paper 25858, University Library of Munich, Germany, revised 2009.
    8. Barry Eichengreen and Carlos Arteta., 2000. "Banking Crises in Emerging Markets: Presumptions and Evidence," Center for International and Development Economics Research (CIDER) Working Papers C00-115, University of California at Berkeley.
    9. Ahec Šonje, Amina & Babić, Ante, 2002. "Measuring and predicting currency disturbances in Croatia: the “signals” approach," MPRA Paper 83137, University Library of Munich, Germany, revised Apr 2002.
    10. Andrea Amaral & Margarida Abreu & Victor Mendes, 2010. "Contagion in Banking Crises: A Spatial Probit Model," Working Papers Department of Economics 2010/03, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    11. Lo Duca, Marco & Koban, Anne & Basten, Marisa & Bengtsson, Elias & Klaus, Benjamin & Kusmierczyk, Piotr & Lang, Jan Hannes & Detken, Carsten & Peltonen, Tuomas, 2017. "A new database for financial crises in European countries," ESRB Occasional Paper Series 13, European Systemic Risk Board.
    12. Betz, Frank & Oprică, Silviu & Peltonen, Tuomas A. & Sarlin, Peter, 2014. "Predicting distress in European banks," Journal of Banking & Finance, Elsevier, vol. 45(C), pages 225-241.
    13. Saadaoui, Zied, 2009. "Fonds propres réglementaires et stabilité bancaire dans les pays émergents [Capital Requirements and Banking Stability in Emerging Countries]," MPRA Paper 25217, University Library of Munich, Germany.
    14. Mahir Binici & Aytül Ganioglu, 2021. "Net external position, financial development, and banking crisis," Empirical Economics, Springer, vol. 61(3), pages 1225-1251, September.
    15. Ryota Nakatani, 2017. "The Effects of Productivity Shocks, Financial Shocks, and Monetary Policy on Exchange Rates: An Application of the Currency Crisis Model and Implications for Emerging Market Crises," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(11), pages 2545-2561, November.
    16. Mark Illing & Ying Liu, 2003. "An Index of Financial Stress for Canada," Staff Working Papers 03-14, Bank of Canada.
    17. Roberto Savona & Marika Vezzoli, 2015. "Fitting and Forecasting Sovereign Defaults using Multiple Risk Signals," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(1), pages 66-92, February.
    18. Elahi, M.A., 2011. "Essays on financial fragility," Other publications TiSEM 882f55bb-10dc-4e49-95ef-e, Tilburg University, School of Economics and Management.
    19. Michiel Bijlsma & Wim Suyker, 2008. "The credit crisis and the Dutch economy... in eight frequently asked questions," CPB Memorandum 210.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    20. Eric Santor, 2003. "Banking Crises and Contagion: Empirical Evidence," Staff Working Papers 03-1, Bank of Canada.

    More about this item

    Keywords

    Spatial probit; Banking crises; Contagion.;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cfe:wpcefa:2014_05. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Angela Pacheco (email available below). General contact details of provider: https://edirc.repec.org/data/cfevopt.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.