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The Phase Locking Distance Index and Dual Breach Principle: A Multi-Dimensional Framework for Synchronized Crisis Risk and Policy Evaluation in Advanced Economies, with Detailed Application to Australia and Canada

Author

Listed:
  • Lai, Yehong

Abstract

[Version note] This MPRA deposit (2026-05-13) is the v0.10.16 working-draft revision of SSRN Working Paper No. 6742863. The current SSRN-archived version is v0.12-canada-extended (revision approved 2026-05-12; initial v0.3.3 deposit 2026-05-10). The present MPRA version incorporates additional prior-art engagement completed within 24 hours of SSRN approval - specifically Section 2.2 (Kathiravelu 2026 Kuramoto-trading), Section 2.3 (ECB CISS via Holló-Kremer-Lo Duca 2012), Section 2.5.5 (Aikman et al. 2017 Journal of Banking and Finance + Lee-Posenau-Stebunovs 2017 Federal Reserve IFDP 1191), Section 3.2 (phase-locking-value disambiguation via Lachaux et al. 1999), and Section 4.4 (portfolio-variance aggregation choice note). The SSRN abstract ID 6742863 remains the canonical citation; this MPRA deposit serves as the prior-art-strengthened version pending the next major SSRN revision. [Abstract] This paper introduces a multi-dimensional framework for measuring synchronized macroeconomic crisis risk in advanced economies. The Phase Locking Distance Index (PLDI) is defined as the geometric mean of standardised distances across four pre-committed dimensions - CPI inflation (A, two-sided), unemployment (B), federal net debt-to-GDP (C), and household debt-to-GDP (H) - derived from first principles via three independent theoretical traditions (Brunnermeier-Sannikov 2014; Reinhart-Rogoff 2009 6-type crisis taxonomy; Schularick-Taylor 2012 + Reinhart-Reinhart-Rogoff 2012). The Talon Threshold is the decision-theoretic universal cutoff PLDI_pr >= 0.80 (risk-asymmetric optimal under high false-negative / false-positive cost asymmetry). The Dual Breach Principle states that when any two of the four dimensions simultaneously breach in a crisis-conditional episode, the remaining two converge to warning zone within 6-24 months in 28 of 30 historical cases (93.3%, 95% Clopper-Pearson CI [78.0%, 99.2%]; n=30 across 20+ countries, 1929-2024). Policy-Induced Phase Locking (PIPL) captures the qualitative claim that policy bundles can synchronise the four dimensions, with the Policy Phase Locking Elasticity (PPLE) providing operational evaluation. Empirical validation comprises (i) joint OOS rolling-window logit on a 33-country panel of 2,148 country-quarters, yielding joint PLDI + Borio-Drehmann credit-gap AUC 0.84-0.85 vs 0.79-0.81 credit-gap alone (complementary-signal pattern with LR tests rejecting either single-predictor specification at p = 2/3 hit rate across 8 countries, political-symmetry verified via N=3 within-coalition cross-validation, Abadie-Diamond-Hainmueller 2010 synthetic control 13/15 sign-agreement). The framework is applied in detail to Australia 2026 (aggregate PPLE approximately -0.35; PLDI = 1.16 = 0.36 units above the Talon Threshold) and as a second-country detailed application to Canada 2026 (aggregate cost-share-weighted PPLE = -0.085 vs Australia -0.21, indicating Canada is approximately 60% less synchronising than Australia at the same cycle point). The paper concludes with a Sequenced Demolition counterfactual for both countries, falsifiability conditions, and generalisability discussion for New Zealand, United Kingdom, Korea, and other advanced economies.

Suggested Citation

  • Lai, Yehong, 2026. "The Phase Locking Distance Index and Dual Breach Principle: A Multi-Dimensional Framework for Synchronized Crisis Risk and Policy Evaluation in Advanced Economies, with Detailed Application to Australia and Canada," MPRA Paper 129087, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:129087
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    References listed on IDEAS

    as
    1. Markus K. Brunnermeier & Yuliy Sannikov, 2014. "A Macroeconomic Model with a Financial Sector," American Economic Review, American Economic Association, vol. 104(2), pages 379-421, February.
    2. Luc Laeven & Fabian Valencia, 2020. "Systemic Banking Crises Database II," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(2), pages 307-361, June.
    3. Atif Mian & Amir Sufi, 2018. "Finance and Business Cycles: The Credit-Driven Household Demand Channel," Journal of Economic Perspectives, American Economic Association, vol. 32(3), pages 31-58, Summer.
    4. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Varieties of Crises and Their Dates," Introductory Chapters, in: This Time Is Different: Eight Centuries of Financial Folly, Princeton University Press.
    5. Laeven, Luc & Valencia, Fabian, 2020. "Systemic Banking Crises Database: A Timely Update in COVID-19 Times," CEPR Discussion Papers 14569, Centre for Economic Policy Research.
    6. repec:rnp:ecopol:09111 is not listed on IDEAS
    7. 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.
    8. Aikman, David & Kiley, Michael & Lee, Seung Jung & Palumbo, Michael G. & Warusawitharana, Missaka, 2017. "Mapping heat in the U.S. financial system," Journal of Banking & Finance, Elsevier, vol. 81(C), pages 36-64.
    9. Mathias Drehmann & Claudio Borio & Kostas Tsatsaronis, 2011. "Anchoring Countercyclical Capital Buffers: The role of Credit Aggregates," International Journal of Central Banking, International Journal of Central Banking, vol. 7(4), pages 189-240, December.
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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