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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
What Macroeconomic Conditions Lead Financial Crises?
Michael T. Kiley
Abstract

Research has suggested that a rapid pace of nonfinancial borrowing reliably precedes financial crises, placing the pace of debt growth at the center of frameworks for the deployment of macroprudential policies. I reconsider the role of asset-prices and current account deficits as leading indicators of financial crises. Run-ups in equity and house prices and a widening of the current account deficit have substantially larger (and more statistically-significant) effects than debt growth on the probability of a financial crisis in standard crisis-prediction models. The analysis highlights the value of graphs of predicted crisis probabilities in an assessment of predictors.


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Michael T. Kiley, What Macroeconomic Conditions Lead Financial Crises?, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2018-038, 15 Jun 2018.
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Keywords: Current account ; Debt ; Equity prices ; Financial crisis ; House prices
DOI: 10.17016/FEDS.2018.038
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