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Does Financial Connectedness Predict Crises?

Listed author(s):
  • Camelia Minoiu
  • Chanhyun Kang
  • V.S. Subrahmanian
  • Anamaria Berea

The global financial crisis has reignited interest in models of crisis prediction. It has also raised the question whether financial connectedness - a possible source of systemic risk - can serve as an early warning indicator of crises. In this paper we examine the ability of connectedness in the global network of financial linkages to predict systemic banking crises. Our results indicate that increases in a country's financial interconnectedness and decreases in its neighbors' connectedness are associated with a higher probability of banking crises after controlling for macroeconomic fundamentals.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/267.

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Length: 44
Date of creation: 24 Dec 2013
Handle: RePEc:imf:imfwpa:13/267
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