Board of Governors of the Federal Reserve System (U.S.)
Finance and Economics Discussion Series
What Macroeconomic Conditions Lead Financial Crises?
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.
Cite this item
Michael T. Kiley, What Macroeconomic Conditions Lead Financial Crises?, Board of Governors of the Federal Reserve System (U.S.), Finance and Economics Discussion Series 2018-038, 15 Jun 2018.
- G01 - Financial Economics - - General - - - Financial Crises
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
Keywords: Current account ; Debt ; Equity prices ; Financial crisis ; House prices
This item with handle RePEc:fip:fedgfe:2018-38
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