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Predicting Banking Crises: Japan's Financial Crisis in International Comparison

  • Michael Hutchison
  • Kathleen McDill

This article compares features of Japan's banking crisis with the experiences of other industrial economies. Using a probit statistical prediction model, we find that Japan's banking crisis follows a pattern found in many other industrial countries, i.e. formal tests do not distinguish Japan as a special case. Our model predicts that Japan was particularly "vulnerable" to a banking crisis in the early 1990s. That is, the model indicated that there was a 50 percent probability of a banking crisis in Japan in 1992 given the configuration of asset prices, credit conditions and other economic factors prevailing at the time. The main factor distinguishing Japan from other industrial countries is the slow and largely ineffectual policy response by the Ministry of Finance to resolve the country's financial crisis.

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File URL: https://crawford.anu.edu.au/pdf/pep/pep-289.pdf
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Paper provided by Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University in its series Asia Pacific Economic Papers with number 289.

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Length: 23 pages
Date of creation: Mar 1999
Date of revision:
Handle: RePEc:csg:ajrcau:289
Contact details of provider: Postal: Canberra ACT 2601
Phone: (61-2) 6249 3780
Fax: (61-2) 6249 3941
Web page: https://crawford.anu.edu.au/research_units/ajrc/
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  1. Burkhard Drees & Ceyla Pazarbasioglu, 1998. "The Nordic Banking Crisis; Pitfalls in Financial Liberalization," IMF Occasional Papers 161, International Monetary Fund.
  2. 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.
  3. Reinhart, Carmen & Kaminsky, Graciela & Lizondo, Saul, 1998. "Leading Indicators of Currency Crises," MPRA Paper 6981, University Library of Munich, Germany.
  4. 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.
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