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Banking crises and recessions: what can leading indicators tell us?

Author

Listed:
  • Corder, Matthew

    () (Monetary Policy Committee Unit, Bank of England)

  • Weale, Martin

    () (Monetary Policy Committee Unit, Bank of England)

Abstract

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.

Suggested Citation

  • Corder, Matthew & Weale, Martin, 2011. "Banking crises and recessions: what can leading indicators tell us?," Discussion Papers 33, Monetary Policy Committee Unit, Bank of England.
  • Handle: RePEc:mpc:wpaper:0033
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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/external-mpc-discussion-paper/2014/the-relevance-or-otherwise-of-the-central-banks-balance-sheet
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    References listed on IDEAS

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    1. Cipollini, A. & Kapetanios, G., 2009. "Forecasting financial crises and contagion in Asia using dynamic factor analysis," Journal of Empirical Finance, Elsevier, vol. 16(2), pages 188-200, March.
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    5. Moritz Schularick & Alan M. Taylor, 2012. "Credit Booms Gone Bust: Monetary Policy, Leverage Cycles, and Financial Crises, 1870-2008," American Economic Review, American Economic Association, vol. 102(2), pages 1029-1061, April.
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    Cited by:

    1. Nicholas Oulton & María Sebastiá-Barriel, 2013. "Long and Short-Term Effects of the Financial Crisis on Labour Productivity, Capital and Output," CEP Discussion Papers dp1185, Centre for Economic Performance, LSE.
    2. Nicholas Oulton, 2013. "Medium and long run prospects for UK growth in the aftermath of the financial crisis," Discussion Papers 1307, Centre for Macroeconomics (CFM).

    More about this item

    Keywords

    Crises; recessions; interdependency; bivariate probit analysis;

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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