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Assessing the Impact of Private Sector Balance Sheets Effects on Financial Crises: a comparison of Bayesian and information-theoretic measures of model uncertainty

Author

Listed:
  • M. Weeks
  • S. Godsill
  • M. Stone

Abstract

This paper examines the intensity of financial crises during the 1990s with a view to informing crisis prevention and mitigation policies. We compare the performance of a full Bayesian and an information-theoretic approach in addressing the econometric problems posed by the lack of a unifying theoretical model, a large number of crisis indicators, and a number of additional data shortfalls. The results indicate that the probability and intensity of financial crises are heightened by corporate illiquidity and leverage, a lack of nonbank sources of financing, excessive domestic relative to foreign currency liquidity and a cutoff of capital inflows. The implications are that policy measures aimed at improving the operation and monitoring of the corporate and nonbank financial sectors could reduce crisis vulnerability

Suggested Citation

  • M. Weeks & S. Godsill & M. Stone, 2004. "Assessing the Impact of Private Sector Balance Sheets Effects on Financial Crises: a comparison of Bayesian and information-theoretic measures of model uncertainty," Econometric Society 2004 Latin American Meetings 162, Econometric Society.
  • Handle: RePEc:ecm:latm04:162
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    Citations

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    Cited by:

    1. Doppelhofer, G. & Weeks, M., 2005. "Jointness of Growth Determinants," Cambridge Working Papers in Economics 0542, Faculty of Economics, University of Cambridge.
    2. M. Hashem Pesaran & Paolo Zaffaroni, 2004. "Model Averaging and Value-at-Risk Based Evaluation of Large Multi Asset Volatility Models for Risk Management," CESifo Working Paper Series 1358, CESifo Group Munich.
    3. Gernot Doppelhofer & Xavier Sala I Martin & Melvyn Weeks, 2005. "Jointness of Determinants of Economics Growth," Money Macro and Finance (MMF) Research Group Conference 2005 54, Money Macro and Finance Research Group.
    4. Pesaran, M. Hashem & Schleicher, Christoph & Zaffaroni, Paolo, 2009. "Model averaging in risk management with an application to futures markets," Journal of Empirical Finance, Elsevier, vol. 16(2), pages 280-305, March.

    More about this item

    Keywords

    Model Uncertainty; Financial Crises; Bayesian Inference; AIC; Kullback Leibler; Model Averaging;

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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