Banking crises and recessions: what can leading indicators tell us?
It is widely suggested that there is some relationship between banking crises and recessions. We assess whether there is evidence for interdependency between recessions and banking crises using both non-parametric tests and unconditional bivariate probit models and find strong evidence for interdependence. We then consider whether leading indicators can help predict banking crises and recessions and if these variables can explain the previously obvserved interdependence. Inclusion of exogenous variables means that the observed interdependence between banking crises and recessions disappears - indicating that the observed interdependence is a result of easily observable common causes rather than unobserved links.
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| Length: | 26 pages |
| Date of creation: | 01 Sep 2011 |
| Date of revision: | |
| Handle: | RePEc:mpc:wpaper:0033 |
| Contact details of provider: | Postal: Threadneedle Street, London, EC2R 8AH Phone: +44 (020) 7601 4444 Fax: +44 (020) 7601 4771 Web page: http://www.bankofengland.co.uk/publications/externalmpcpapers/index.htm Email: More information through EDIRC
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