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Stability periods between financial crises : The role of macroeconomic fundamentals and crises management policies

  • Zorobabel Bicaba

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics, CERDI - Centre d'études et de recherches sur le developpement international - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique)

  • Daniel Kapp

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

  • Francesco Molteni

    ()

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)

The aim of this paper is to identify which factors explain why some countries are more prone to enjoy long durations of stability, while others experience crises in shorter intervals. To this end, we analyze the duration of stability periods between currency, debt, and banking crises from 1980 to 2008. We find that durations of tranquility between currency and debt crises are bimodally distributed, making conventional econometric models unsuitable. Therefore, we introduce an innovative econometric strategy, the Finite Mixture Model. Real and financial variables are found to have high predictive power for the spell of stability between currency crises, while for debt crises, the real interest rate is observed to be the best predictor. The time between the occurrence of systemic financial crises is prolonged through large-scale government interventions and IMF aid programs, while recapitalization turns out to have a negative impact.

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00639869.

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Date of creation: Oct 2011
Publication status: Published in Documents de travail du Centre d'Economie de la Sorbonne 2011.64 - ISSN : 1955-611X. 2011
Handle: RePEc:hal:cesptp:halshs-00639869
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00639869
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